Russell Closes At All Time High As VIX Has Biggest Two Day Drop Ever

Tyler Durden's picture

Update 2: MLNX down 22%. Earnings, and cash flows, matter. And now, time to ramp some other stock only to see it implode when it announces earnings or guides down.

Update: MLNX, a $2.6 billion market cap company, was up 3% today before being halted after hours and crushing guidance by preannouncing horrible revenues. Expect many other S&P 500 companies to be forced to do the same now that their market value, driven almost exclusively by "someone's" ceaseless selling of VIX futures and by correlation engines which assume every company has to rise (and sometimes even fall) by the same amount as the biggest synthetic indicator, the E-Mini, is so disconnected from any cash-flow reality, that only the Fed can possibly assume there is fair value for the stock market at current levels.

* * *

The drop in VIX in the last two days is the biggest percentage drop on record (based on Bloomberg's data) as the S&P 500 futures (ES) have managed a 70-point rally. The exuberance at today's open ebbed through the middle of the day but then resurged into the close as the day-session range was actually quite narrow (sub-10pts). High-yield credit surged (leading the way) coupled with VXX (huge odd volume spike) as pain trades were everywhere. FX markets were decidedly unimpressed even as Treasuries tracked along with stocks for most of the day (though lagged the late-day surge as 10Y yields stalled out at the 12/187 highs). Commodities held on to gains even as the USD turned positive on the week. On the bright side, all those who have been invested in the S&P since March 2000 can exit at (nominal) breakeven and all it took was a 400% increase in the size of the Fed's balance sheet. This feels very delicate and all anchored on a massive protection unwind (as volumes and blocks were dumped into the late-day ripfest).


Massive volume spikes into the closes of the last two days... as ES lurches over 70 points...


Last time we saw a two-day swing like this we sold back 75% of it within a week...


VIX drops over 35% in the last two days...


and the synthetic ETF VXX was crushed - with an odd volume spike... -11.5% to all-time lows...


The collapse in VXX was the major risk-on driver today


as was HYG's surge...


10Y Yields snapped higher to 12/18 recent highs and stalled out...


FX markets were not following along...


as EURJPY - which was heralded last night as indicating the world was bid - slid back to unchanged from New Year's Eve...


So - FX markets did not buy it;Treasuries did not buy it; and massive vol compression (remember how overly short vol the market is and just how painful that would be) drove a huge short-covering spike in stocks... and volume was not that big by the way - despite all the excitement of a 300+ point rally in the Dow on TV.


Blocks were big and volume was heavy as we spiked...


Charts: Bloomberg and Capital Context

Bonus Chart: The chart every NYSE floor trader is worried about... TRIN vs the index today...(h/t @eminiwatch) - TRIN is a technical analysis indicator that compares advancing and declining stock issues and trading volume as an indicator of overall market sentiment.

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Ness.'s picture

Hide yo kidz, hide yo wife, hide yo husbendt -cause they rapin' airy-one up in her!


Manthong's picture

The New Year’s party bender hasn’t ended yet, but the hangover is going to be a doozy.

Al Huxley's picture

No hangover as long as everyone keeps drinking.  Pass the fucking lysol and vanilla - cheers!

economics9698's picture

Vanilla wafers and beer, a dinner for the divine. 

Joe Davola's picture

Hell, why stop now - avoid the hangover altogether!

WhiteNight123129's picture


This year starts more bizarre the year before. As for interest rates rising alright but equity cheering? Ah please.......


Spider's picture

Money has to go somewhere - people just dont get it.  Its leaving bonds to go to.... stocks, commodities, PMs.  Like I said before, the market has no good fundamentals - but you have to be ignorant to short inflation

Joe Davola's picture

While reviewing my 401k investment choices, it seemed oddly coincidental that all choices were up between 9.8 and 15% last year.

One World Mafia's picture

Since Ben has run out of paper to twist and we know no way they will do what it takes to really bring the deficit down bc that would entail ending wars and bringing home US military from bases all over the world, then it's either inflation or a brotherhood of darkness nation will be propping up the US.

WhiteNight123129's picture

The big mistake is to think that stocks have reacted to inflation. They do to certain extent, but how to explain bifurcation between Gold and STocks in 1970s?

Stocks react imperfectly to money printing, Gold too. However rising nominal yield ALWAYS contract P/E multiples. Gold does not give a shit, nomimal yield can rise to the moon, as long as real yield are negative it is all good.

When real yield keeps being negative while nominal yield start to rise you have your bifurcation between stocks and Gold not before. The catalyst for a wall on P/E multiples is long bong yield rising.


The bond yields can not go over 4% without starting to force dividend yields up, if the profit margins have peaked somewhat and dividend yields are low, and if inflation expectation set in, you have headwinds for stocks in real terms. Earnings might rise nominally but increase in long bond nominal yield hurt PEs.



TwoHoot's picture

Nearly anything that happens over the next few months will tend to compress P/Es I think. Higher bond yields certainly will.

John Mauldin had a thought provoking article indicating either inflation or defaltion (indicated by rising or falling commodity prices) will also compress stock P/Es.

Right now, stock prices are rising to bring stock yields in line with ZIRP bond yields. That is probably the horse to ride for the short term.

When they get lined up, the P/E compression trade should be ripe because earnings are unlikely to rise enough to offset the price rise necessary to give ZIRP stock yields.

That sums up my stock planning for 2013. Now it is just a matter of executing.




WhiteNight123129's picture

On other hand I gladly buy some Chinese stocks at 7% dividend trading below liquidation value with no real issues affecting the business.


luna_man's picture



Hey, "spider"... No need to be insulting!...

Just keep doing what you're doing (following the crowd), I'll just keep doing what I'm doing (shorting) this "motha" until I go broke or get my way!...

futhermore, why should you care??

max2205's picture

Ben just really wants YOU all to know who's in charge...regardless.

Bastiat009's picture

Less than 1 week ago, experts at ZH called a bloodbath on the stock market because of some Friday night future contracts. Wow, yet another great calls by so-called experts.

NotApplicable's picture

So... just who are these experts?

Don't you ever tire of attacking imaginary strawmen?

King_of_simpletons's picture

US Stock market has decided to go beyond irrational exhuberance to utter bizarro.

SheepDog-One's picture

We got good nows?

No, bad news actually.

Hmmm....'fake it'?

Yea....fake it who gives a fuck ramp this dogshit!

Bastiat009's picture

The experts? I really don't know who they are.

fonzannoon's picture

Bay of pigs....why can't we call a spade a spade around here? ZH is without a doubt the most informative source of info I have ever stumbled upon. But when it comes to short term market predictions I would rather just punch myself in the balls. I don't need ZH or anyone elses help.

Bay of Pigs's picture

Agreed fonz. But throwing shit out there without naming anyone is so fucking weak. That's all I'm saying.



fonzannoon's picture

I thought he was naming ZH and since we don't know who the Tylers are by name I gave him a bit of a pass. But I extend my had to help and he slaps it. Whatever with him, what a putz.

Bastiat009's picture

Dude, relax ... if you don't want people to notice your bad calls, don't make them.

fonzannoon's picture

I was defending you you dumb shit. You must have went to MIT you really are stupid.

Al Huxley's picture

It was a nice try on your part Fonz, but some people just don't want to be helped, or are so full of themselves that they don't even recognize help when it's offered. 

samcontrol's picture

the dumb shit is musk from yahoo pbr message board, quite a case.. he hates zh. I

fonzannoon's picture

They put up a chart once a week showing the market moving up and then they extrapolate the charts to imply that the market just about to crater. They do not come out and say "short the market" but the sentiment of their articles is usually of an impending collapse.

They properly disclose that they don't owe us any favors and that they can trade any way they want, including opposite of the way they indicate. So anyone who trades off this info gets whatever comes their way.

kliguy38's picture

hey bro.....happy New Fuckin' year......ponzi masters only playing game with the stops ....they don't even give a shit about painting the tape here ....only distribution is the game and collecting the leverage chips now

Ras Bongo's picture

Do the opposite of ZH calls and you'll be rich

homersimpson's picture

Yea - that "gold" thing is really making us all broke *rolls eyes*

SheepDog-One's picture

Well as I recall, everyone and their gramma was saying for months that it was all 'for the election' then right after that reality would come crashing back in. 

No one knows when reality will come back in, but it will sometime whether tomorrow or maybe months away but the shit will hit the fan.

Bastiat009's picture

Sure, the shit will hit the fan ... tomorrow or in ten years and that makes a huge difference because as we all know on a long enough timeline ....

chump666's picture

I see your point.  But 95% of anyone playing this market knew that markets will rally year end and on the money printers last gasp post fiscal cliff.  The market is rigged via money printing and HFTs, so when we see a HFT crash on mini futures it does show that the flows of the market no longer correspond with fundamentals or liquidity dynamics i.e rigged. ZH imo is making a lot of good calls, for me, the main one is the tensions in the middle east and south china sea.  In which the Japan/China dispute will go hot etc. 

The big market issue this year will be algos or HFT trading, again ZH is onto this whilst most commentators don't even touch it.  In summary the money printers will lose grip (sooner than we think) on this market as reality hits.  It will be ugly.

dirtyfiles's picture

massive rally on massive denial

Boilermaker's picture

And, they banged the living shit out of the close.  Just a big cherry on top.

This has reached all time retardation. 

Oh, it's up AH also. 

I guess this is it, huh?  Just keep getting a larger and larger sledge hammer and smash it upward daily.  Eventually, retail will enter, TBTF will be recapped, and then the bottom can fall out.

This is disgusting.

mrktwtch2's picture

i bought some vol in the last least it was

SheepDog-One's picture

That's that new Russian vodka right?

fonzannoon's picture

It is the gift that keeps on giving. 3 weeks of bad macro news to rile up the shorts and the sick bastards that want to play the vix followed by 1 week of totally scortching the shorts. The debt ceiling set up on the way now. Should be fun to watch.

ekm's picture


It's an insect trap. Sudden moves like this show pure despair. There are no suckers.


Did you buy a dacha already?

fonzannoon's picture

Not yet, I am making my plans though.

EKM how does the trillions in 401k money by individuals fit into your concept?

ekm's picture

I'm slowly adopting your thoughts on this, slowly though.

Check this one;


I think that money will be stolen by Obama.

ekm's picture

Those funds already own a lot of stocks, which in storage.

They can't churn stocks though.

It's quite, quite, quite possible one or two or three of these would be obligated to vanish and dump their stocks into the market for liquidation.

fonzannoon's picture

People get paid (mostly) biweekly. So every two weeks there is a lot of inflows into stock funds. It just seems like your theory is largely correct, but there are still some assets coming in.

Hey I can't open that link but it looks interesting...whats the gist of it?

ekm's picture

Links works.

Pension funds want to buy protection but it's denied.

Big bank can claw back their assets.