Coordinated Rumor Ramps Risk

Tyler Durden's picture

Epic. Stocks clambered back up to the 1315 (S&P 500 e-mini Sept 2012 contract) level which has been a critical VWAP level for a few days now amid what was a mildly slow day (though IG credit outperformed from its recent deterioration). Then the rumors started.  Risk assets jolted in a very systemic manner (all highly correlated) as ES popped above last Friday's highs (unable to get close to Monday's open we do note), then as the realization that a pre-emptive warning of 'some' action in the case of 'some' event was simply the status quo anyway and we gave the entire 14 pt ramp back. Then we bounced once again as BoE made some noise on further stimulus if things go pear-shaped and we bounced again (though this time only about 8pts and on very small average trade size we note) as we headed into the close right around last Friday's highs. With OPEX tomorrow, this vol could not be more stop-inducing and painful for many as the Dow has now been -150, +150, -80, and +160 pts this week and decent volume today although average trade size remains limited (on the lack of conviction we pre-suppose). Gold and less so Silver bounced off their earlier spike-down moves and WTI rallied like a champ today (resyncing with Silver just in the green for the week). Gold is up 2% on the week (but was far less impressed with the chatter today than stocks were) as in the meantime the USD dropped and ended -0.75% on the week (and AUD is now 1% stronger). Treasuries whipsawed around but only retraced around a third of their rally from yesterday's morning session as 7Y and 10Y underperformed (+5bps or so). Pre-OPEX VIX is always a mess but we dropped over 2.5 vols into the close to end under 22% (but above Friday's close). Risk assets in general moved together and stayed in sync today during the final hour's carnival with stocks perhaps a little rich by the close.

Quite a week in ES but today's final ramp - dominated by low average trade size (the yellow bars - h/t @eminiwatch) - makes us less certain of any follow through...

Between VWAP levels, Friday's close, and low and high volume nodes (at left in the distribution), this week's action has been very mechanical (with a retest of the Monday 1337.5 levels not out of the quyestion on an auction higher though we suspect a push back down to around 1313 is more likely in the very short-term. (though judging from the market reaction to EUR100bn last weekend, this weekend could be even uglier one way or the other)...

but it seems all the covering is occurring here into the weekend as cheap IG protection was sold back to sync with HY and stocks...

Financials were the most volatile post-rumor as is clear from this chart (though they ended up holding onto gains into the close)...

Oil outperformed dramatically - moving back into the green for the week - while Gold was considerably more stable than Silver (as both bounced off their spike lows from earlier in the day)...

Treasuries have been just as wild a ride as stocks this week. Tuesday 30Y yields retraced 50% of the Monday open to close rally and Today retraced around 38.2% of the Wednesday open to close rally. It would appear the risk-on bounces are losing their strength...

The drop in VXX and exuberance in HYG was enough to juice SPY all day long (as per the upper left chart) but risk-assets broadly were in sync with stocks all day - even as we popped-dropped-and-popped (upper and middle right). Equity correlation with risk assets rose in the afternoon (lower right) and VIX fell back to its 'fair' level based on the moves in credit and equity markets by the close...

All in all feels like some covering/squaring and some squeezing/stopping on the rumors into a tough OPEX and even tougher weekend...

 

Charts: Bloomberg and Capital Context

Bonus Chart: Today was the second best day for Facebook since its IPO (+3.74% vs +5% on 5/31) on the 2nd lowest volume day it has had. If there was any question as to what the new QE-momo stock is - we have found it as FB rallied well over 2% on heavy algo-driven volume as soon as the rumors hit...pathetic!!