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Why The Market Ignored GOOG's Plunge (If Only Briefly)

Tyler Durden's picture




 

Via Michael Faso of FBN Securities,

GOOG’s ill timed oops in the early afternoon dumped the S&P 500 approximately 12 handles from what been shaping up previously as a fourth straight “checkmark” session.  The technology behemoth provided another example of a non-financial firm’s missing earnings expectations by a country mile such that companies in aggregate have fallen short of bottom line and revenue estimates for the quarter when factoring out the figures from big banks.  With large broker-dealer announcements mostly in the rearview mirror, the prospects for the rest of the reporting season appear dim.

Despite the shocking nature of the disappointment, the TICK never registered a print worse than –925 in the immediate wake of the surprise headline, a highly unusual phenomenon given the aggressiveness of the downward move

Here is a chart showing an adjusted TRIN vs the S&P futures - no broad-based selling pressure as the index fell and recovered...

 

This suggests large institutions stayed with their VWAP buy programs (as in the chart below) out of confusion or necessity.

I can envision only two scenarios for such adherence to purchasing in the face of clear extremely negative news on, what was at the time, the third biggest stock in America. 

First, in anticipation of this morning’s expiry, the baskets could have reflected a desire to add to share positions to the balance sheet and/or to protect the very important 1450 strike price for the S&P 500.  Furthermore, the buying could have arisen simply from the need to put money to work especially in light of the standard October fiscal year end window dressing for many mutual funds.  Regardless of the reason, both of these impetuses are transient as the momentum may tail off as early as today with the arrival of the “double witch.”  This puts equities in a very tenuous state especially considering the huge increase in open interest for the futures after Wednesday’s third consecutive session of solid gains hinting that managers are still trying to expand their portfolio beta.

The economic data continues to improve aggressively with the Philly Fed easily outdistancing consensus despite its two most important components, Employment and New Orders, ticking down sequentially.  Some bulls were encouraged by the 1% increase in Leading Indicators versus the August numbers; however, the data series historically has offered nothing of predictive value, save that of a contrarian indicator.  For example, the previous instance of such a leap occurred arrived three days ahead of the April, 2010 top that spawned a 17% selloff for the blue chip index.  Although the survey did increase with similar magnitude in April, 2009, it produced several encouraging readings near the apex of both the Dot Com bubble and financial crisis.

Regardless of how I spin these numbers, I am forced to concede that the recovery has appeared to accelerate in September.  This optimism conflicts with what corporations are saying via their earnings releases, preannouncements, and conference calls.  I had argued through the fall of 2011 that in the case of such a divergence, I always will defer to what companies have projected as opposed to the typically stale figures the government has released.  Thus, I subsequently remained steadfastly bullish at the time. This dynamic currently has flipped such that I do not expect a trough in earnings growth, but rather a peak in economic strength.  Overseas weakness, fiscal uncertainty, and a central bank that has fired its last bullet by signaling the launch of the QE3 only gives me comfort for this thesis.

Other warning signs remain intact as the small caps continue to lag as the Russell 2000 underperformed the S&P 500 again yesterday despite the heavy weighting of GOOG and AAPL for the latter.  The average intraday range for the blue chip index continues to calculate to approximately 12 handles, a dangerously skittish level that consistently has led to significant pullbacks*** as many managers step aside during selloffs for fear of taking heavy losses soon after entering or adding to a position.  Finally, as we inch closer to the Election in the face of a tight race, the probability of an exogenous negative shock on November 6 and in the intermediate aftermath rises daily.  Moreover, with Congress scheduled to go on vacation on December 14, the window available to solve the fiscal cliff will shut quickly in the wake of a bitter campaign season.

 

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Fri, 10/19/2012 - 08:47 | 2903847 GetZeeGold
GetZeeGold's picture

 

 

Hey....you got GOOG all over my AAPL!

Fri, 10/19/2012 - 08:47 | 2903851 Colombian Gringo
Colombian Gringo's picture

They both suck.

Fri, 10/19/2012 - 09:04 | 2903892 kito
kito's picture

what sucks are these large ads suddenly popping up on zh.......especially irksome on my cell phone where they are hard to rid.................

Fri, 10/19/2012 - 09:26 | 2903923 LouisDega
LouisDega's picture

Get an iPad. The popups are nice and big so you can easily thumb torpedo them.

Fri, 10/19/2012 - 09:41 | 2903966 fonzannoon
fonzannoon's picture

I have the droid. It totally sucks with these pop up ads. Just try to drive and text and check ZH while trying to X out of those ads. It's damn near impossible.

Fri, 10/19/2012 - 10:36 | 2904146 Svendblaaskaeg
Svendblaaskaeg's picture

I have the muh-cow installed on every pc I own, nuff said

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Fri, 10/19/2012 - 09:43 | 2903971 Eireann go Brach
Eireann go Brach's picture

Well according to that French cunt Hollande "the crisis in Europe is over"! He will also eat his words soon!

Fri, 10/19/2012 - 08:51 | 2903863 riphowardkatz
riphowardkatz's picture

unreal how the fall is attributed to the prerelease and not the bad news. or I guess it isnt.

Fri, 10/19/2012 - 08:54 | 2903865 slaughterer
slaughterer's picture

A bullish Gartley patterm should be forming on AAPL at $610.  

 

 

Fri, 10/19/2012 - 08:56 | 2903878 LongSoupLine
LongSoupLine's picture

its exponential manipulative bullshit fueled by HFT flowbots.

as for mutual funds...they're fucking broke, so the wondow dressing is likely hedge fund, Fed and their TBTF bitches at work.

Fri, 10/19/2012 - 09:45 | 2903975 fuu
Fri, 10/19/2012 - 08:58 | 2903883 Lokking4AnEdge
Lokking4AnEdge's picture

Look at the chart of TVIX......from $100 to just over $1.00 in one year......ofcourse it can go to zero if they shut off the stock market permanently...

Probably a low risk buy at this stage......

Fri, 10/19/2012 - 08:59 | 2903886 Water Is Wet
Water Is Wet's picture

This guy is talking out both sides of his mouth.  He's bearishly optimistic.  Or bullishly negative.  Or something.

Fri, 10/19/2012 - 09:06 | 2903897 The Axe
The Axe's picture

Tyler    that is the strangest  reaction I HAVE EVER seen!!    Never   its like a fire in the building and everone stayed at their desk,   in fact they did not blink!!!!!

Fri, 10/19/2012 - 10:57 | 2904197 chart_gazer
chart_gazer's picture

if truth could ever be told, yesterdays early release of GOOG numbers was planned.  

prices on many things were way above OpEx max pain pin numbers (aapl 630, goog 700, spy 1450 etc) at the time. needed to get them down quickly. needed a shock.

then of course, the QE3 hoards of cash provide the safety net when the prices get to the levels they want.

its all a manipulated, rigged game now. play at your own risk

Fri, 10/19/2012 - 09:08 | 2903899 LoneStarHog
LoneStarHog's picture

The human body has two orifices from which to emit sounds.  This CLOWN uses both.

Fri, 10/19/2012 - 09:09 | 2903905 Never One Roach
Never One Roach's picture

'An ill wind this way blows.'

Fri, 10/19/2012 - 09:15 | 2903917 alp
alp's picture

HFT, robots, bulls, bears, whatever: nobody can be right 100% of the time. Manage your risk. Simply as it is and it will always be.

Fri, 10/19/2012 - 09:16 | 2903918 onebir
onebir's picture

TICK = NYSE tick index?

http://www.tradestation.com/en/education/labs/analysis-concepts/testing-...

If "managers are still trying to expand their portfolio beta", why did the Russell 2000 (typically higher beta small shares) underperform when the S&P dropped? Shouldn't they have been scooping those up...

Fri, 10/19/2012 - 09:16 | 2903919 adr
adr's picture

True economic conditions don't follow bullshit patterns in stocks and modified seasonal adjustments to surveys.

Major retailers ordered 30-40% less than they did last year. They may sell a higher percentage of available product this holiday season, but it is impossible to sell more than last year.

Retailers were forced to put more than half of their inventory on sale last year just to get rid of it. Post Christmas sales hit 90% off, selling product at a loss. Some Walmart stores by me still have items from last year in a clearance aisle.

This year the retailers hope to create shortages to keep prices high, and get more shoppers in the doors early to move inventory before the discounts are needed to move product.

Toys listed as top holiday products will have extremely limited quantities. Retailers took a bath on the expected sales of some of these items the past few years. The new Furby looks like it will be a complete dud.

Fri, 10/19/2012 - 09:26 | 2903936 jimijon
jimijon's picture

I missed the memo somewhere....

What does VWAP stand for?

Thanks 0hedgers

Fri, 10/19/2012 - 09:32 | 2903949 Ralph Spoilsport
Ralph Spoilsport's picture

Volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price a stock traded at over the trading horizon.

https://en.wikipedia.org/wiki/VWAP

Fri, 10/19/2012 - 10:01 | 2904018 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Blow off top bitchez!!

Do NOT follow this link or you will be banned from the site!