• williambanzai7
    09/16/2014 - 12:16
    I have tons of good stuff to post, but this morning I'm feeling something like this...

3 Month 'Slow' In Stocks As Everything Else Goes Nuts

Tyler Durden's picture




 

UPDATE: Biggest down day in Faceplant since 5/29 (down 8%) to close at $28.25 on double recent volume.

This was the narrowest day's range in S&P 500 e-mini futures (ES) in over three months and volume was dismally slow as it clung to its 50DMA amid larger than normal average trade size. Elsewhere, markets were anything but dead. Commodities dipped and ripped with WTI breaking back over $88 on Saudi news and Silver/Gold/Copper all ending around unch on the day but leaking off their highs into the close (though well off lows). For a while 'bad was good' as the retail sales print prompted QE-on-esque trades with Gold up, USD down, and Treasury yields plunging to near-record-lows. FX and commodities appeared to catch up to stock's more sanguine view of things from Friday but once there, Treasury yields reversed and rose into the afternoon as EURUSD continued to rally back well into the green (repatriation?) dragging the USD down 0.25% from Friday's close. Credit notably underperformed equities on the day (with HYG stumbling into the close). It seems everyone is waiting with baited breath for Bernanke's speech tomorrow and VIX (which is back in line with realized vol for the first time in 5 months) limped higher by around 0.4 vols to 17.1%.

It seemed like today was catch-up day for the USD and Gold to stock's ebulience from Friday. What is notable is that once USD/Gold/ES had recoupled then Treasuries started to sell back off. Somewhat suggesting in our humble opinion that EUR were repatriated by European banks selling down their US Treasury holdings which were soaked up by the US dealers who then unwound their implicit slightly long TSY position in the afternoon pushing yields up...

S&P 500 e-mini futures clung to their 50DMA (light blue) while exhibiting the lowest intrday range in over three months (middle pane) and very low volume (lower pane)...

though average trade size was notably above average  - and generally spikes like this mark turning points in professional positioning...

especially given how narrow band around VWAP we traded today...

 

S&P 500 index implied vol (black) has fallen in line with 3-month realized vol for the first time in almost five months...

 

Healthcare (safety rotation) and Energy (WTI pop) sectors were the only ones to end green as despite Citi's 'tremendous beat' /sarc, financials underperformed. Citi gave back all its early gains to add 0.45% on the day as the majors were mixed though JPM underperformed (JPM -2.8%) snapping back to the CDS-implied levels we warned about on Friday. Industrials underperformed...

but the question remains - why aren't stocks dropping as Treasury yields plunge? Well, apart from some crazy notion of QE3 driving rates even lower and maintaining the nominal price of stocks, all the volatility of the last few weeks in Stocks vs Bonds really comes down not to levels but shapes... as we have described in detail before the 2s10s30s butterfly is a prime example of a carry-driver for equity leverage and despite Treasuries in general all plunging to record lows, the shape of the curve has been relatively stable - as seen below... so if we are looking for further weakness in stocks we need to see 10s30s flatten MORE than 2s10s steepens (at least among other things)...

though we would not be surprised to see this gap filled...

Credit notably underperformed stocks on the day...

Across the models, correlation was breaking down (lower right) as would be imagined given the lack of movement in stocks and intraday shifts elsewhere. It seemed that risk assets in general (TSYs in the afternoon, and JPY crosses less so - also oil) were playing catch up from less than sanguone views from Friday's close (upper right). Across the ETF-space, HYG had an ugly close to drop into 'fair-value' with SPY (upper left) but then after hours we see some big blocks going through at Friday's VWAP (looking like sell-orders given where it was)...

but while SPY and HYG have had a bumpy ride with each other since the start of June (after being relatively well synced before that), Friday's surge in stocks dragged SPY up to HYG's position and HYG's underlying index also rallied up to this level (the green in the lower pane shows how rich/cheap the ETF is to its 'fair-value' based on its underlying bonds). At current levels HYG, HYG's fair-value, and SPY are all in sync...

Charts: Bloomberg and Capital Context

Bonus Chart: Biggest down day in Facebomb since 5/29 - down 8% at $28.25 - BTFD anyone? Which compared to a post-IPO VWAP (that is the volume-weighted average price of EVERY trade that has occurred in FB) is $33.24 means pain for so many...


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