Stocks And Bonds Reconnect As Endangered Rising VIX Posts A Rare Appearance

Tyler Durden's picture

Once again equity markets disconnected (positively) from their risk-related cousins at around the European close and while broad equity markets closed around unchanged, the weakness in HY credit, and rise in VIX and Treasury bond prices as the day wore on told a slightly more concerned story than stocks would suggest. AAPL rose helping the tech sector; homebuilders saw their biggest loss in 5 weeks following weaker than expected housing data; and CAT's incredulous rally on total lack of clarity for their outlook provided just enough juice to keep the Dow near unchanged. S&P 500 futures fell rapidly to Friday's low as the US day session opened but found support and oscillated around unch/VWAP for the rest of the day. The USD round-tripped from early strength to end unchanged with GBP weakness and JPY strength. Oil rallied, Silver slipped, Gold tracked the USD, but Treasuries' overnight weakness halted instantly as the US day-session opened. Volume and average trade size were low which combined with the VIX expansion and broad risk-off suggests the equity rally is losing steam - but who knows anymore.

 

S&P 500 futures leaked higher all night as Treasuries weakened - as data hit early on, futures fell to Friday's lows but as we headed into the European close futures had recovered and then oscillated on weak volume around VWAP for the rest of the day. The rally in AAPL coincided with the rapid sell-off in S&P 500 futures...

 

VIX has very notably disconnected (not just spot but out-months too) in recent days...

 

HY was considerably weaker than stocks all day but in a magical liftathon into the close they perfectly recoupled...

 

The USD rose modestly early on but fell back after US opened. GBP weakened notably and while JPY was volatile it ends the day stronger vs the USD...

 

Treasuries and stocks remain recoupled - though it is worth noting that Treasury yields were a one-way street from the US day-session open today and suggest slightly more risk-off...

 

and a little close-up on that orange oval shows today rather notable divergence between rates and stocks after recoupling early on...

 

Across broad risk assets, it is clear when the disconnect occurred (upper left chart) as VXX, HYG, and TLT ignored SPY's strength. The overnight weakness in TSYs dragged CONTEXT (the broad risk proxy) up to stock's perspective and from early in the day correlation picked up and they tracked rather well...

 

Yet another day when market breadth was dismal as TRIN ignored equity performance...

 

So market breadth weak, TSY strength all day (weakness was overnight - BoJ?), Equity disconnected from VIX and HY credit, and volume and average trade size weak... but apart from that - BTFD!!!

 

Source: Bloomberg and Capital Context

Capital Context (@CapitalContext) LLC is the leader in integrating credit-market data to actively trade equity markets. From our world-renowned intraday 'CONTEXT' and 'SPY Arb' models to the daily long-short equity portfolio, sector-weight updates and tactical asset-allocation strategies, Capital Context offers sophisticated hedge-fund strategies to the active trading community.

 

Bonus Chart: YHOO roundtrips as outlook for revenues is cut...