As Europe closes with a record high DAX and a 15 year high for the FTSE-100, it seems the weakness implied by USDJPY and bonds has caught up (or down) to US equities. After bagging the 1,900 level, the S&P 500 is now down on the day and while Trannies hold green, the Russell 2000 is getting slammed (-0.8%)... but it's Tuesday!!!
The Russell 2000 had its best day in over 17 months today - up 2.5% (best since Jan 2nd 2013) and +4% from Friday's lows. All US equity markets exploded higher our of the gate thanks to a ridiculous spike lower in VIX (below 12) and USDJPY stop-run back through 102 which squeezed "most shorted" dramatically higher. The Dow, Trannies, and S&P all made new record high closes...and it's not even Tuesday yet! Away from stocks, silver jumped over 2% for almost its best day in 3 months. Gold rebounded over $25 from overnight smackdown lows. Oil broke back above $100. Treasury yields rose modestly (2-3bps) - majorly out of sync with equity exuberance. JPY was large and in charge of stocks but the USD ended the day unchanged. S&P futures volume was 30% below recent average.
"Good" economic news and "stronger than expected" earnings reports have apparently buoyed the market against the drain of liquidity from the Federal Reserve. Today, the market ripped higher at the open as hopes of a "QE" program from the ECB rippled through the markets. Despite commentary from the mainstream media that the markets are doing great, the updated chart below shows the markets continuing its tug-o-war between support and resistance. This is an important point to remember. While it is certainly possible that the markets could ratchet higher from here due to the "psychological momentum" that currently exists, the likelihood of a runaway bull market from here is remote.
Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy. Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on.
US equity markets were off to the races when stocks opened and Yellen began to speak but the late-day ugliness was written on the wall by a total lack of support from either volume or any other risk-market. The S&P ramped up to last Friday's spike highs, Zero Hedge reminded traders that Biotech P/Es were double what they expected, and the 30Y auction tailed ugly was enough - with a dearth of news (aside from downplayed escalations in Ukraine) stocks dumped and played catch down with JPY (weakness) and Bond (strength). EUR weakness (from Draghi Jawboning) provided the impetus for USD strength but leaves the USD unch on the week. Considerable divergence in bonds today (30Y +3bps, 5Y -3bps) means the curve is steepening modestly. VIX was running stocks today and we slammed back under 13 briefly and closer higher on the day. Ugly day for high beta stocks with the Russell near 6mo lows (and the Dow is back in the red for 2014)
With market internals dismally weak and 967 of the Russell 2000 index's members down over 20% from their highs (a bear market), the question is: how long can they maintain the status quo thanks to a handful of big blue chips as levered longs attempt to stay solvent?
Are the S&P 500 and VIX right while the Russell and Treasury Rates are Dumb?
The streak is over! US equities suffered their biggest Tuesday loss in over 6 months today. Despite the same valiant attempt to ramp stocks after a weak open (using JPY and VIX) as yesterday, Turbo Tuesday turned out to be tepid tumbling Tuesday as high-beta hopes were dashed amid little to no macro or event risk news. Yesterday's dead cat bounce in yields appears to have been just that and stocks tracked them lower all day (and disconnected from USDJPY mid-afternoon as it was unable to break 101.50). The Russell was the worst performer (along with NASDAQ) as the broad index closed below its 200-day-moving-average for the first time in 18 months (after 7 false alarms in the last 2 weeks). Away from stocks, credit spreads widened, bond yields dropped, the USD sold off 0.5% to 19-month lows, commodities were generally flat (gold +0.65% on the week), and VIX closed +0.5 vols near 14. Welcome to "Torpedo Tuesday"
But "they" said it was all ok yesterday? That is was all "priced in"... and it's a Tuesday!!!! US equity markets - most notably the Russell 2000 and Nasdaq - are back at yesterday's lows. We did see the ubiquitous JPY ramp, stock pump around POMO but it would appear we have reached Peak Tuesday Effect as every self-fulfilling prophecy inevitably comes to an end (though there is will a couple of hours left to save "investors")... Treasury yields are notably lower (unch on the week) with gold and silver modestly higher (up small on the week). Credit markets warning signal from yesterday seems to have bee spot on ...oh and TWTR's lock-up was "NOT" priced in... 1114 is the most important number of the day (the 200DMA for the Russell 2000)
Thanks to the miracle of VIX slamming, USDJPY-stop-running, CBOE breaking, US equity market opening, "we're not worried about no stinking Ukraine civil war or Chinese economic collapse", low volume levitation, stocks knee-jerked off early dumping lows to recover comfortably into the green today. Not everything was exuberant though (as Trannies and the Russell 2000 ended red - bouncing once again off its 200DMA). Gold gained almost 1% today (back over $1310) for its best 2-days since January. The USD closed unch (with notable weakness in SEK). USDJPY ranged down below 102 and rammed stops to lead the charge higher in stocks (even with Japan closed for 2 days). Stocks tracked JPY but benefitted from a dead-cat-bounce in Treasury yields. VIX closed higher on the day (unable to regain the late-slam from Friday). AAPL regains $600 and Biotechs bounced 4.5% - so everything's fixed.
After 3 months of range trading, Treeasury yields have resumed their year-to-date downtrend. The Friday Bearish Outside Bar (a bearish chart pattern indicating further downside) and closing break of the 2.591% range lows says lower 10yr yields are coming (targeting 2.40%)for 10Y Simply put, BofA's Macneil Curry warns - Don't Fade This Breakdown... Watch US equities.
Stocks just could not figure it out - good jobs data, bad jobs data, WWWIII? But Treasuries and gold did. 30Y yields tumbled to fresh 11 month lows (lot of desk chatter of GPIF buy orders ahead of their holiday), 10Y to 2014 lows, but the short-end sold off as 5s30s flattened to 5 year lows (under 170bps). Despite some smackdowns this week, precious metals bounced back notably today with gold's best day in a month, back over $1300 and unch on the week. Despite yields tumbling, Utility stocks were the week's losers (-1.2%) while homebuilders were best (oh yeah because lower mortgage rates is all that is holding back pent-up demand for homes!!). On the week, Trannies outperformed but Russell 2000 was worst of the major indices (the opposite of today's action). The USD pumped and dumped around the jobs data, but ended the day unch (down 0.25% on the week). Credit markets closed at their wides of the day, notably divergent from stocks on the week. A massive VIX-selling effort began late in the day (because with 38 dead in Odessa who would need to hedge?) - but stocks ignored it.
It was not a Tuesday, and it was not a Fed day - so stocks closed red. Volume was dismal. The Russell 2000 tested its 200DMA once again (and bounced) but was unable to sustain that strength. Once again the biggest news was the continued collapse in Treasury yields as a combination of massive spec positioning short "because rates have to go up" and the ugly reality of macro weakness combined to send rates to 2014 lows (and 11-month lows for 30Y yields). This is the biggest year-to-date drop in 30Y yields since 2000. The Dow's weakness meant it lost its gains for 2014. Despite ongoing USD weakness (driven by GBP and EUR strength), commodities traded lower with silver worst today (red for 2014), copper weak, and gold and oil flat to modestly lower. VIX was pummeled down to almost 13 midday (which makes perfect sense ahead of NFP - why would anyone hedge that?) but leaked higher as bond market reality set in during the afternoon. The ubiquitous very-late-day VIX slam pulled stocks higher in a buying panic but failed to get the S&P, Dow, or Russell green on the day.
The Russell 2000 tumbled to its worst month since May 2012. 30 Year bond yield had the 2nd best month in a year (with the entire bond complex lower and curve flatter for 5th month in a row). Gold rallied for the month as high-yield credit spreads widened for the 2nd month in a row. US economic growth collapsed. But what really matters... what is key for the headline-makers, story-tellers, and asset-gatherers... is that the Dow Jones Industrial touched new record highs. On the day, early equity weakness gave way to exuberant buying as the Fed admitted its forecast for Q1 was shit but everything it says about the future is spot on - stocks urged, the Dow hit new all-time-highs (and green for the year) but once that level was hit, stocks began to fade but were rescued by the always-happy-to-help 330 Ramp which closed us at record highs and green year-to-date. By the close, the day saw Stocks Up, Bonds Up, Gold Unch, USD Down
Despite the Dow's price-weighted index of just 30 stocks pushing comfortably into the green for the 7th Tuesday in a row (on dismal volume), things were not as exuberant anywhere else in stock-land. Amid a very narrow range day, completely divergent from the rest of the risk-asset complex, sustained only by the life-giving blood of Fed-sponsored VIX-selling into the FOMC event risk, performance today was internally weak with Russell 2000 closing red for the week (as the S&P and Dow managed to regain green for April but the Dow still could not make it green for 2014). Away from stocks, Credit markets were weak, Treasuries rallied (with yields lcosing 1-2bps lower on the day despite equity strength), Gold closed marginally higher and oil up 0.5% on the week. The USD closed up for the day but unch on the week as JPY strength dislocated from stocks.