Equities closed the day-session near the highs of the day as OPEX shenanigans were evident everywhere. Early and ugly macro data was swept under the proverbial carpet (as it is transitory Sandy effects?), the ubiquitous European-close trend reversal started us higher, and then platitudes from D.C., and a late-day Fed-Head jawbone did the rest on a day when AAPL saw its largest volume in 8 months and pinned between 520 and 530 VWAPs. Risk assets did not follow the path of most exuberance that stocks did on the day (surprise). Credit tracked with stocks today in general but remains an underperformer on the week. Oil was the week's big beta winner with the USD (despite underlying dispersion in EUR and JPY) and Treasuries rather dull. Gold sagged but by the close today the S&P 500 had recoupled with the barbarous relic on a beta basis. VIX compressed (exciting some that are incapable of comprehending a term structure) as put overlays were unwound into OPEX (and given the VWAP/volume moves it would seem AAPL saw hedges taken down and exposure reduced). Red week as stocks continue to catch down to bond's new normal.
Each day we wake and look to the markets for guidance. Typically that guidance means - which easily-leveragable asset class can be pulled (or pushed) to move the US equity markets (in their algo-correlated manner) in which ever direction we need (up as much as possible obviously since the status quo requires it). Sometimes, it's EURUSD, other times it's PMs; today, it is oil's turn! There has been no real escalation in tensions in Israel in the last hour, no news of significance; and yet WTI has popped 1.5% and in an almost perfectly correlated manner, S&P futures have chugged along to the highs of the day to run those stops before the US day-session open. Efficient Markets... Pin Risk... OPEX...
Equity indices end the day marginally red as the machines tried every trick in the book to get markets up...(levering FX carry, spiking PMs, running HYG, spiking vol) to enable more selling - especially at the close when we saw notable size blocks being traded into that ramp to try and get green. VWAP was the anchor all day for S&P 500 futures (and since the synthetics are where the liquidity is - everything else followed) as stocks trend-reversed as normal on the EU close. In general volatility and high-yield credit had a significantly weak day but into the close managed to rise a little as risk-assets broadly recoupled with equity markets to close. Despite a lot of noise and chop stocks lost a little, Treasuries gained a little (-2bps on the week!), Silver scrambled back from its flash crash (but gold didn't do as well), and the USD ended today up a remarkably unchanged 0.04% (with EUR up 0.5% and JPY down 2.2% on the week). VIX ended back above 18% as AAPL just keeps falling with its 300DMA now in play.
Leveraging EUR strength (USD weakness) in the US-open-to-EU-close to ramp stocks to highs was rapidly followed by a collapse back to reality in US equities from EU-close-to-US-close. Just remarkable. Treasuries and FX markets were much less exuberant over the entire lack of news that drive the S&P up over 20 points from open to EU close and sure enough - helped by the obvious desperation of a 'failed' Yellen-threat - equities retraced it all; ending the day back near the recent lows. Stocks once again tested the bottom of Draghi's Dream and rejected it; commodities were mixed and very dispersed with Copper and Silver swinging wildly (up on the day) even as the USD ended the day practically unchanged. Tech and financials are the losers still on the week as AAPL clawed its way back to marginally green by the close with the magical $545 level now critical four days in a row.
Presented with little comment - for any comment would simply end in ridicule and exasperation - but it seems quite clear that more than a few algos feel the need to keep S&P 500 futures above 1400 into the month-end and OPEX. S&P futures closed at 1411.25 (+3.75 from Friday's close).
UPDATE: CAT is sliding AH after noting higher chance of recession and cuts 2015 EPS guidance from $15-20 to $12-18 - Slide attached
Following Friday's two-year high volume levels on the NYSE - as OPEX and rebalancing dominated - today saw reversion to the dismal mean in both cash and futures market volumes. It seems sell-the-news was the meme today as builders (LEN earnings exuberance) and AAPL (less than whisper sales) sold off and broadly speaking we saw the month/quarter's winners lagging as safety and stability lead the way.
With the combination of a strong quarter (week or two) for stocks, futures rolls (and CDS yesterday) and the OPEX / index re-weighting it seems we had a modest case of small doors, large crowds into the close today (S&P futures end 1pt above FOMC-day close). Volume picked up dramatically (NYSE highest in a year) as the Dow closed lower on a Friday for the first time in nine weeks! Treasuries outperformed - ending near the low yields of the week (having retraced all the post-QE move - down 10-15bps on the week) but Gold remained relatively bid ($1775) and Oil also rose in the last couple of days. VIX was unch but noisy thanks to OPEX (and remember it's still at a high premium to realized vol - not entirely complacent). Credit underperformed as risk-assets in general led stocks lower. On the quarter, Silver was the big winner (up ~26%) followed by Gold (up ~11%) both beating all the major US equity indices.
UPDATE: Denial: *WHITE HOUSE'S CARNEY SAYS `NO CHANGE' ON OIL RESERVES
Dismissing the ridiculous ignorance of calling the market action in the last few minutes a 'fat finger', it is clear that between no/low volume, 'banging the close in the pit', futures roll and ETF interactions, Oil's OPEX, SPR release rumors, and correlated vaccuum tubes, the reactions between US equities, oil (WTI and Brent), USD (and all major crosses), and the PMs are extremely volatile. No one knows what the 'news' is but one thing is for sure, its priced in - whatever it is. We just remind those 'trading' that with QEternity, all the good news 'help' is now out there - so what's left - jawboning Oil down. Treasuries are a littel jiggy but nothing remarkable.
NFLX price then: $178.05... NFLX price now: $55.40; Return: -71.20%. And they say CEOs know their companies best...
Thanks for the advice Reed. But we'll stick with our short. But hey, when the whole CEOing thing doesnt work for you, the ECB will surely hire you as it is in dire need of people who sound sophisticated, pretend they know what they are talking about just because they speak loud and with confidence, and write long-winded essays of windbaggery, that say nothing, and end up 100% wrong.
Corporates are in relatively good financial shape and theory says should respond to high profits and cheap debt by investing more. However, while high 'profits' and low cost of debt are reasons for capex and opex to be rising more quickly than they are, these two critical drives of recovery show no signs of responding to these profit/debt incentives - and so as Citigroup notes "recovering is not booming". Top-down, compared to history, capex is low, following P/E's sentiment - especially in Europe (indicating a lack of confidence in the future). However, at the sector level this reverses: high capex has been given a low PE, while low capex has a high PE. The market is effectively encouraging companies to invest less and return more money. Longer term the consequences for economic growth, inflation and earnings growth are negative - as we trade (once again) short-term equity gain for long-term sustainable economic gain.
UPDATE: TXN misses and guides down:For the third quarter of 2012, TXN expects:
Revenue: $3.21 – 3.47 billion vs consensus Exp. of $3.53 billion,
Earnings per share: $0.34 – 0.42, vs consensus Exp is $0.43
VIX opened north of 20%, traded to 20.49%, and then it was decided that this level of premium over a recent calm realized vol period is too much and the front-end of the volatility market was crushed over 2 vols lower. While VIX closed up 2.3vols at 18.6%, the sell-off into Europe's close recovered handsomely on low volume leak back up to VWAP (thanks to HYG and VXX's stability) and then an afternoon push to last Monday's close before giving most of the afternoon gains back in a few mins after the cash close. The EUR dip-and-rip, the stick-save in the S&P whenever it tumbles with any kind of velocity, the fearless selling of short-dated vol, juxtaposes the general state of safe-haven seeking in Treasuries (and Swiss/German bonds) as the entire TSY curve saw record closing low yields amid a 3bps flattening at the long-end. Equity volume was meh, average trade size was meh - though as cash closed near day-session highs we saw heavy blocks selling, and ES traded between its 61.8% and 50% retracements of the March-to-June swoon. Broad risk assets did not play along with stocks this afternoon (though equities and gold recoupled) and neither did TRIN which remained very flat all day. The USD ended stronger by 0.2% (in line with EUR weakness) but SEK was the day's best major performer as AUD lagged (down 1% against the USD today). Volatility pulled plenty cheap to equities once again which remain notably more sanguine than credit and TSYs but the magic 1340 level in ES appears to be the line in the sand for now - though given a 10Y at 1.40%, do not expect NEW QE anytime soon - though Gold outperformed its peers on the day as WTI slid over 4% from Friday's close.
VIX is trading back above 20%, up over 4 vols this morning as its jump is the largest in over 8 months. This instant response to the ultra complacency we discussed last week, as 'they' take their totally dislocated foot off the neck of implied vol, has shifted the short-term volatility expectation from its calmest in almost four months to its most terrified in a month. Perhaps, just perhaps, the talking-heads who espouse this 'fear' index will finally realize its contemporaneous nature and treat it with the disdain it deserves. For now, it appears expectations of market turbulence - now that OPEX is out of the way - are reverting to more realistic levels of un-complacency.
Equities managed to rally after slumping on heavy volume to the 1340 level (scene of crime for Greek election, Spanish bailout, and EU-Summit) pushing up to close at the mid-June swing high levels and post EU-Summit close levels around 1358 (back over its 50DMA). Total volume for the S&P 500 e-mini (ES) was just below average but the average trade size was dismal - around the lowest of the year. Whether due to VIX options expiration squeeze sending VXX and other derivatives tumbling (with VIX almost testing a 15 handle intraday); or a safety 'algo' running things up and over VWAP; or a reflexive reaction to bad is good and Bernanke has our backs no matter what happens, equities pushed 20 points off their lows but stagnated for much of the afternoon. The surge in stocks far outpaced risk-assets and what was more worrisome was the notable divergence in gold as the afternoon wore on - if this was QE-hope then the main QE-sensitive asset class of choice was not playing along at all into the close. Gold and Silver ended the day down modestly, Copper worse, but WTI ended the day up 2.3% on the week and back over $89. Treasuries pushed higher in yields (oh yes very QE-on?) - no higher in yield on the week with the long-end underperforming. FX markets were a little more aggressive - like Treasuries - and extended their rallies relative to USD with AUD now up almost 1% and the USD now down 0.36% on the week - which is interesting given Gold is also down around 0.5% on the week.
As S&P 500 e-mini futures (ES) slumped this morning as Bernanke appeared to disappoint (and the rest of the risk-on asset classes all tumbled with it), we saw heavy volume and relatively large average trade size. Once the edge of glory from Friday at 1340 was hit, it seemed the magic Potter-esque fairy was back at play. Immediately, VIX was hammered from 17.5% to 16.1% - its lowest in almost 3 months as the bottomless pit of capital that feels comfortable selling vol (or perhaps using a levered approach to ramping stocks) drive ES back up an impressive 14 points on low volume and low average trade size. Yes, we crossed VWAP, yes we crossed unch, and now we are testing highs back above the 50DMA. It seems VIX once again is the ramping tool - and now is significantly dislocated from any equity or credit sense of reality. We presume that OPEX will clean up some of this exuberance but for now, it is the tail wagging everything's dog.
Epic. Stocks clambered back up to the 1315 (S&P 500 e-mini Sept 2012 contract) level which has been a critical VWAP level for a few days now amid what was a mildly slow day (though IG credit outperformed from its recent deterioration). Then the rumors started. Risk assets jolted in a very systemic manner (all highly correlated) as ES popped above last Friday's highs (unable to get close to Monday's open we do note), then as the realization that a pre-emptive warning of 'some' action in the case of 'some' event was simply the status quo anyway and we gave the entire 14 pt ramp back. Then we bounced once again as BoE made some noise on further stimulus if things go pear-shaped and we bounced again (though this time only about 8pts and on very small average trade size we note) as we headed into the close right around last Friday's highs. With OPEX tomorrow, this vol could not be more stop-inducing and painful for many as the Dow has now been -150, +150, -80, and +160 pts this week and decent volume today although average trade size remains limited (on the lack of conviction we pre-suppose). Gold and less so Silver bounced off their earlier spike-down moves and WTI rallied like a champ today (resyncing with Silver just in the green for the week). Gold is up 2% on the week (but was far less impressed with the chatter today than stocks were) as in the meantime the USD dropped and ended -0.75% on the week (and AUD is now 1% stronger). Treasuries whipsawed around but only retraced around a third of their rally from yesterday's morning session as 7Y and 10Y underperformed (+5bps or so). Pre-OPEX VIX is always a mess but we dropped over 2.5 vols into the close to end under 22% (but above Friday's close). Risk assets in general moved together and stayed in sync today during the final hour's carnival with stocks perhaps a little rich by the close.