The Fruit Shall Lead The Way

Tyler Durden's picture

As Monty Python might have said, apart from AAPL; what has the market done for you today? S&P 500 cash managed (somehow) to cling to a green close while the Dow and Nasdaq ended red. Critically - markets went only one way all day - from upper left to lower right as we go out at the lows of the day - back again at the Draghi cliff edge and just below pre-QE levels. AAPL was a disaster - on heavy volume - as it pushed back down towards it 100DMA (over 3% from its opening highs today!) ending at its lowest in two months with its biggest slide in 5 months (last 14 days). Risk-assets in general tracked closely as while AAPL slide from the open, equity indices manage to hold opening gap gains until Europe closed and then it went pear-shaped. The USD slid all day but didn't 'help' stocks as JPY weakened more (carry offsetting). Treasury yields plunged - 30Y now down 12bps on the week. Commodities all gained on the day - led by Oil (with gold/silver lagging). Meanwhile VIX ignored the debacle, gapping lower at the open and holding down 0.7vols at 15.6% as HYG handily outperformed on low volume.


S&P 500 futures - plunge-plunge - linear-tickle...


and medium-term...holding at Bernanke's Bottom, at the tip of Draghi's Dagger...


The US equity indices post-QE are exhibiting a high-beta unwind (or simply managers realizing that AAPL was way overweight...)


Treasuries dipped-and-ripped today...


HYG outperformed after a serious plunge late on last night - today seemed more like catch up to NAV (volume was light)... and once again IG was preferred into the close...


AAPL - Algos run wild - couldn't get back to VWAP today...


and longer-term - we are at the 100DMA and up-trendline... line in the sand time...


Risk-assets remained highly correleated all day (right) but into the close the VXX suppression and HYG push failed to ignite strength in SPY (left)...


VIX dropped today - in the face of weakness in the equity markets. Why? We are not sure but suspect the divergence between AAPL and the index (as in AAPL is not behaving in line with its recent empirical relationship with the index would suggest) is causing the index vol and implied correlation markets to get FUBAR. As the chart below shows - the relationship between implied correlation (orange - inverted) and the spread between AAPL vol and market vol (black) is very strong. At the same time - as we showed here - intra-index correlations are breaking down as the flow of QEternity seems to be fading and sectors are diverging (healthcare from financials/tech/energy for example). The key is - with AAPL such a large weight in the indices, its implied vol is a major driver of index vol. However, as the chart shows - when AAPL's vol picks up relative to the index (black line rises), so the index vol will underperform (implied correlation will fall) to reflect the expectations of rising idiosyncratic risk NOT systemic problems. However, as the bonus chart below shows - soon after, market vol tends to play catch up - which will then drag implied correlation higher...


Charts: Bloomberg and Capital Context


Bonus Chart: AAPL Implied Vol Diverging From S&P 500 Implied Vol... the last few times we have seen AAPL vol pull away from market vol, S&P vol has risen rapidly after peaking near current levels... We suspect the current VIX dislocation is due to AAPL vol weights in index correlation trades....

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Ostapuk Ivano's picture

Is Trish Regan getting even hotter?

lineskis's picture

Newton's law has a particular grip on Apples... What goes Up...

DCFusor's picture

Now I'm wondering if I should have closed my AAPL short at the close today.  Maybe it has more to go.  I'll wait till after the mini-ipad for the next, I think.

The trend is your friend's picture

the PPT has hijacked the vix to keep the markets from panic selling until the major players have their fill of call options

DeadFred's picture

If I read it correctly the big legal victory over Samsung has been overturned. I'd keep the short if that's true. It may even explain why people have been dumping it.

Ferrari's picture

Magnificent! That really hit the spot.

Blasé Faire's picture

I'm still trying to figure this out... WHO DOESN'T LIKE RON PAUL?

And props to him for mentioning Austrian Free Money Economics.

chistletoe's picture

my mother.


(she wanted me to be an abortion .....)

Overfed's picture

Anybody with an IQ above room-temperature and who aren't benefitted by the status-quo game are the Ron Paul voters. This of course means that at least 80% of the American public is against Ron Paul.

DeadFred's picture

My dad likes most of what he says but wouldn't vote for him because he doesn't have enough stage presence. Go figure.

mendigo's picture

So on target.
It is painful to see people debating over these two canditates as if they really represent a choice - you are being asked to believe that you have a choice. Either of these two represent a vote for status quo a continuation on the path that brought us here.

Id like to suggest that everyone should consider voting for my dog, Belle. You can see she has a presidential bearing. And she was a really good dog - passed away recently. I think a dog would do a better job.
Vote for Belle!

slaughterer's picture

Odd day considering that JPM/WFC are expected to report good earnings tomorrow.  

fonzannoon's picture

Slaughterer how come we spend 2 3/4 months on here discussing how trading volume has to be killing these banks and destroying earnings and the other week discussing how the banks are expected to report good earnings?

slaughterer's picture

As for AAPL, either it forms a double bottom at the 100DMA or it trend downwards until earnings.  

Ineverslice's picture


One of the Four-Horsemen has blown a shoe...

zorba THE GREEK's picture


I thought Bernanke had a funny twinkle in his eyes.

I am a Man I am Forty's picture

totally normal correction, apple "the bubble" trading at 11X earnings if you take out the cash, XOM trading at 10x

Meesohaawnee's picture

i doubt iphones will have the long term viability as crude

Panafrican Funktron Robot's picture

Why the fat P/E on GOOG then?  There is no such thing as a "totally normal" anything in these markets.  The endless justifying of what everyone deep down knows is total bullshit is indicitive of Stockholm Syndrome by both retail and peripheral institutional "players"/suckers.

ToNYC's picture

GOOG makes money from people everywhere thinking; AAPL makes money only from fashion-phonies. The Quality and robustness of one-trick pony's Earnings is discounted and skewed by a patent battlefield of their own "Winning!".

DoChenRollingBearing's picture

O/T, but I explore the topic of friends, both "real friends" and "virtual friends" at my blog:

Debeachesand Jerseyshores's picture

Follow the bouncing Apple and you will be following the bouncing Nasdag.

Galactic Superwave's picture

AAPL has great products but the percentage/influence they have on the NASDAQ and S&P is ludicrous. What happens when they can't make products because Foxconn goes on strike or a major earthquake takes out Cupertino or <pick your black swan here>.

John Law Lives's picture

Considering the run that AAPL has had in 3+ years, pocketing gains seems prudent... not to mention that AAPL may well prove to be overpriced.

Jam Akin's picture

Fruit is leading the way in our queer market pride parade.

muppet_master's picture

when @ $690



its now @ $628..don't panic you "steady" bulls...wait for sub $350...THEN you sell.....right b4 the dead cat bounce!!

TheCanadianAustrian's picture

I thumbsed downed you but it has absolutely nothing to do with your market predictions.

disabledvet's picture

When the Fed ADMITS PUBLICLY they want to "inflate" then short anything at your peril. The irony of course is that the market is easy to play: buy an index fund. Trying to make CASH worthless at the same time by not allowing for a return on it is the STUPIDIST IDEA EVER. And of course the totality of the USA Inc has responded by maintaining HUGE cash hoards. (And the real good ones have massively invested in the USA actually....DIRECTLY.) but clearly you don't want to give your money to an asset advisor unless you know the guy personally. Index funds are the only asset class that factors in "Fed Stupid." So far...they've done very well actually.

Yen Cross's picture

 I just emailed that AAPL chart to a couple of people that I told to sell apple 10% ago. I wonder how many people that own APPL can actually read a chart? They will come back with the same BS. "Awe it will go back up".

 It's a shame that they can't make a couple of clicks or a phone call, and sell some shares and let AAPL lose 10-20% , then buy back the original shares +10-20% more, or something else that isn't full on retarded parabolic!

mademesmile's picture

I try not to think about Bernanke's Bottom and the tip of Draghi's Dagger.

The worst trader's picture

When does the volatility begin? Never, not allowed.

The Alarmist's picture

In the real world, volatility is a two way street and the VIX would pop up on each plus and minus 1% swing ... in CBOE world, volatility is only when things go down, and even then it seems muted.  

chump666's picture

A slight short squeeze is creeping up.

orangegeek's picture

Apple/AAPL.  They make high margin hardware, right?  PCs in the form of tablets and phones and mp3 players.

So what happens to those AAPL margins when more competition shows up?


Follow the NASDAQ100 as a bias for AAPL.


Enjoy the ride down.