Calm Before The Storm? Credit Plunges As VIX Futures Jump Most In 2 Months

Tyler Durden's picture

Credit markets are continuing the trend of the last couple of days with this afternoon seeing their underperformance accelerating. Major underperformance this week in investment grade and high yield credit markets relative to stocks (and as we noted this morning, we are also seeing financial credit in Europe notably underperforming) as Maiden Lane II assets are sold and high yield issuance peaks (and liquidity dries up). Adding to the concerns, VIX futures saw their biggest 2-day jump in over two months despite equity's modest rally. On a day when Pisani tells us there was much to rejoice about, stocks managed only negligible gains (even with broad risk assets in risk-on mode, TSY yields up, FX carry up, Oil up) and while stocks are limping higher now (aside from AAPL of course) with financials underperforming, perhaps this week of notably higher average trade size in equity futures is the calm before the real storm gets going - as credit and vol seems to be hinting at.


High yield credit (light red) has now been leaking dramatically for a few days. Investment grade credit (dark red) also started to crack this afternoon as ES (the e-mini S&P futures contract) in blue managed to creep up to new highs once again. HYG (green) has a major stumble in the middle of the day (red oval) but was 'rescued' to close higher - though ended with a stumble.

Volumes in ES and NYSE were around average but we note that yesterday saw the highest average trade size in ES since 7/28/11 - the top of the crash slide coincidentally. Is retail about to be left holding the bag again as the professionals exit into strength?

Perhaps it is coincidence but the event that stumbled credit and then equity markets initially last summer was the attempted and failed sale of Maiden Lane II assets. We note that Goldman lifted out some of that trash this week from the FRBNY and held it on their books - suggesting they got it 'cheap' if you know what we mean. Maybe hedgers are out looking for protection as they worry new marks are in place for those CDOs?



VIX futures saw their biggest 2-day jump in two months and nearly the biggest since the Thanksgiving Day rally began in earnest. By the close VIX futures had jumped 5% or over 1 vol over the last two days.

JPY and EUR were the key features of today's FX market with the former managing to reach 1.33 before the European close and then wiggle sideways for much of the rest of the day (ending up 1% on the week so far). JPY leaked lower once again, now down 1.4% on the week

Treasuries ended off their highest yields of the day with modest steepening on the day as 30Y underperformed  (though was better off the auction). 10Y is the major underperformer on the week (mortgage convexity?) and is up 11bps while 30Y is up only 6bps. Even the short-end managed some losses with 2Y up 3bps on the week so far. 2s10s30s  - a popular risk driver - is up an impressive 23bps from Friday's close at 63bps and has helped support the risk-on rally in stocks.

Commodities diverged from just before the European close with Oil and Copper ending at their highs holding gains while Silver and Gold leaked back to the day's lows to close more in sync with the USD weakness on the week. All ECO-sensistive commodities are still up on the week with WTI nudging $100 again and outperforming +1.9% and Gold +0.2% (against USD -).4%).

In the words of one of the best equity/credit traders we know (h/t Andy Y) "Someone pooped in the pool but not everyone has seen it yet".

Chart: Bloomberg

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AmazingLarry's picture

I've been watching it. Looks like SPX futures VIX fell out of the lower BB and is perhaps heading back to the 18MA like it has been for the past two months at least.

Thomas's picture

None of this matters if Appleflix is soaring.

a growing concern's picture

Yep. Limited downside, potential 5-6x upside (or more) if you can be patient with it.

resurger's picture

Wait for the Dow, it's close to reaching the 13,000, there is a potential of spiking the market's higher and taking the S&P with it.

buy max 100-200 shares and buy more as it heads's lower.(IMO)

Am a bear, so be careful that's all am saying.





resurger's picture

Fuck the VIX if you have that graph in real time

kaa1016's picture

It's interesting because the last few days, I've been saying that I've been seeing some weird action in the market. VXX up the last 3 days while SPY is also up. Anyone who watches volality knows that you don't see that happenning for more than a few days without one of the two breaking down. I put on a SPY put spread right before the close. We'll see what happens...

distopiandreamboy's picture

Monthlies expire next week, VXX historically bounces a bit the week before and leading up to options expiration.

Hippocratic Oaf's picture

As I stated on previous post, bought TVIX Tues at 14. Too much crazy ass shit going down for VIX to be this low.

Too much suckin' on the Hopium pipe. Still catch it on the way up, but I think we've seen resistance here.

Hide your PM's befo big brother come callin'.

IrritableBowels's picture

Bought at 14.20.  I like it.

Jlmadyson's picture

Nothing has changed. They have deeply hidden the facts for awhile, but like life itself those facts always come back around.

Fidel Sarcastro's picture

Interesting ES volume today too Tyler...

ES volume was low overall, but compared to the recent average it was 8% higher.

The NET aggreesive sellers led buyers by 1.41% with this 8% increase in volume.

And the trading in the high end of the range - the ridiculous 3-handle chop - was all selling. Net selling increased 6 fold up there - capping the rally.  

Calm b4 the storm?  Could be...but the monkeys will prolly still grab at the Dow 13k banana first. 

Randall Cabot's picture



Feb. 9, 2012, 12:01 a.m. EST

The insiders are selling heavily

Commentary: July was last time insiders were equally as bearish

That’s a scary parallel indeed, since that late-July spike in selling came just days before one of the more painful two-week periods in the stock market in years



Shizzmoney's picture

And methinks all the insiders are rooting for another US downgrade.

Nothing like a planned short sell!

French Frog's picture

The juiciest banana around and like you i'd be amazed if we don't get there first before any meaningful drop; there must be plenty of stops gathered above and just ripe to be taken + it would make some wonderful headlines into the weekend; i can almost hear cnbc .....

Glad to hear though that selling at the top has increased; a gap down opening tomorrow below the recent lows just above 12810 to get a better idea of the bulls' resolve would be nice indeed

*worked just as planned*

Awakened Sheeple's picture

I bought TVIX @ 15.60. Lots of volume today. Big money placing their bets? Get your popcorn ready folks!

Piranha's picture

got some yesterday, I want to see what happens to TVIX when S&P actually falls, yep nice move on vol today

ZeroPower's picture

Ah yes, everyone all of a sudden loading up on an asset meant to decline. Wise wise risk management here folks, really. Enjoy the pop if you get one, but dont expect a move from 14 to 100.

Awakened Sheeple's picture

Right and buy and hold value investing is the best investment strategy. You're better off playing the contrarian and gambling in these manipulated markets.

ZeroPower's picture

Lol yes i definitely said B&H only. Believe me, you betting on a levered vol etf is not playing contrarian but playing an idiot and letting the big boys eat your lunch.

alien-IQ's picture

so far in 2012, the /ES has closed in the red a mere 7 times of 28 trading days. And the biggest down day was a measly -5.75.

With those numbers, you'd think the world were in some kind of economic nirvana.

Simply mind-boggling.

Fidel Sarcastro's picture

That - or it's rigged by the global central banking mafia. Just sayin...

resurger's picture

Blackrock say's you have to be 100% in Equity 100%

One Hundred Percent

alien-IQ's picture

And Goldman today recommended going long the AUD/USD.

Conclusion: Short the AUD/USD.

And since the /ES has traded in lock step with it...well...deduce from that what you will.

smb12321's picture

If the FED institutes QE3 either directly or indirectly (some would argue we've had various versions of QE 2 1/2) then yes, go long in stocks.  Ride up the advance/weak dollar and don't forget to sell. 

smb12321's picture

This is so eerily reminiscent of the dot com crash.   I was a day trader and though inundated with warnings, I chose to believe it could go on forever.  The worst aspect of a bubble is the unwillingness to accept that it has finally burst.  On the surface stocks are barely moving but unerneath a vicious churning is taking place.  The potential disasters -EU, debt, credit, debtm housing, debt, low volume, jobs.  As a friend said, "It is the proverbial calm before the storm."


slaughterer's picture

It is going to surprise you, but the ES will be pushed to 1380 before the SHTF.

Fish Gone Bad's picture

This will be the first market collapse that everyone saw coming and yet still got pants'd.  Its only fun when everyone loses.

smb12321's picture

Yes, just as we are watching the decline of our nation before our eyes and seem unable to do a thing about it.  The worst thing about massive debt is not the money itself but the dangerous political path taken when the SHTF.  I don't really worry about a Bush, Clinton, Obama or Romney but we could elect someone who promised that all we need is "tough rules", less freedom, more control - all, of course, for the good of the peoplel  

It's like the "Patriot"Act.  Under the current presidents we can get by but the potential is there for an unscrupulous maniac using "terrorism" as a rationale for instituting the uglier sections.


smb12321's picture

I can realistically see 1400 or even 1425.  The power of the FED to push markets should not be discounted.  I noted with amusement how the MSM reports markets.  During the Clinton years, it was cool to invest in stocks with PEs of 200. With Bush they were lways bitching that yeah, the market reached new highs but the "people" were left out.  Now with BO we return to the same BS -great market therefore the economy has recovered when in fact, we are worse off (participation) than ever.

RSloane's picture

I think many of us share your uneasiness and you are right, this is all too familiar.

Poor Grogman's picture

Haven't we seen this somewhere before, yes yes now I remember...

withnmeans's picture

Piss-any is a paid off puppet of the CNBC clown squad !! Why does anybody watch that painted over bulls#$t?

blunderdog's picture

Isn't it against the law for the market to go down, tho?

AC_Doctor's picture

Fed algo's control this market with the help of Goldman Sachs, JPM and BOA and their primary dealer pimps.  When they change the MOMO's to sell mode, it is going to be a bloodbath of enormous proportions...

Triple A's picture

calm before the storm? no way, happy days are here again.

alien-IQ's picture

don't you mean blissful days?

GMadScientist's picture

don't you mean ignoranceful days?

Piranha's picture

I think it's safe to say that the Greek deal is PRICED IN

JLee2027's picture

Oh don't worry, they'll fix it somehow - just like they hammered down Italy 10 year Bonds, magically kept Bank of America stock over $5 a share, the DOW in general, T Bill yields, etc.

In fact, if Zero Hedge said it; it's now on the hot sheet to be pumped back up.

AC_Doctor's picture

No shit,  PPT at work 24/7.   These fuckers have had not rest since the US debt downgrade.

Stoploss's picture

BINGO. Would be nice for ZH to report on nothing but skittle shitting unicorns on every corner, free houses on every street for about 3 weeks. Unfortunately, without Zerohedge, Ben wouldn't have a clue as to what to do. Hmmm. ZH on the bull train?? Nah...

sitenine's picture

Yes, a storm is coming.
We will call it the war to end all wars.
In reality, it will be the war to end all.
Are you prepared?

AC_Doctor's picture

Lock, load and one in the pipe - ready to rock & roll.

GMadScientist's picture

okay, now point it at your temple...