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Dow Down Six-In-A-Row As QE-On Hopes Fade Into Close

Tyler Durden's picture





 

Despite miraculous efforts to find the right fulcrum security to pressure stocks into the green for the day, equities end the day notably in the red after cracking (once again on heavy volume and large average trade size) into the close. Reverting as usual back to VWAP, the market was typically manic today with two significant QE-on pushes (Treasury yields lower as Stocks/Gold rallied with USD weakness) after the better-than-expected 30Y auction ended badly for stocks (as Gold held its modest gains up above $1570) as it reverted rapidly back down to bond's reality into the close. Once again very close to record low yields in Treasuries - with 30Y yield down over 10bps on the week. Initial bids under Silver (which reverted up to perfectly sync with Copper on the week) and then WTI (over $86, post further sanctions) provided some correlated excitement for stocks but it was clear once again that the low volume liftathon was an exit opportunity for bigger players with financials and tech notably underperforming as there was heavy rotation into the safety of Utilities, Healthcare, and Staples. Vol selling was back in vogue as VIX managed to trade lower on the day despite the negative day in stocks - only to jump back and end +0.4vols at 18.3% with a 7.5pt loss in stocks. Cross asset class correlations jumped back up notably and broad risk assets and stocks traded along with each other all day - with the S&P's late day romance with bullishness cut off in its prime by the reality of VXX (and HYG's leak back). Average volume and average trade size on the day in aggregate but the European close rally monkey just ran out of steam as 'size' stepped in to move ES down to its 50DMA and the Dow near its 200DMA to ends it sixth down day in a row.

VWAP reversion - you gotta love the efficiency of markets... The dump, the auction 'tickle-algo' back up above VWAP and the heavy dump back down to close... as elegant as a Russian weightlifter doing gynmastics

The QE trade seemed de rigeur today (or more likely algos just adjusting to the new regime) but stocks realized the folly of their ways into the close as gold maintained a bid (safe haven?)...

 

and commodities had quite a day - leaving gold the underperformer on the week...

and across asset classes - correlations picked up very systemically (lower right) as is clear by the relationship between CONTEXT and ES in the upper right on the day. VIX remains notably cheap copmpared to credit/equity fair models (lower left) and the late day exuberance in SPY (upper left) was ignored by our VXX/HYG/TLT model to which it kindly reverted into the close...

as the major financials have given up all of their post EU Summit gains and then some - but we do note that XLF (the financials ETF) remains an outperformer - we suspect that will not last...

Charts; Bloomberg and Capital Context

 


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Thu, 07/12/2012 - 16:34 | Link to Comment zero19451945
zero19451945's picture

Lack of rumors. Wait till the rumors start up again.

HFTs don't have anything to feed on.

Thu, 07/12/2012 - 16:59 | Link to Comment slaughterer
slaughterer's picture

Everybody needs to understand that caution is warranted in the face of the China GDP drop at 4am tonight.  Hence the sell-off into VWAP on close: otherwise ES would be levitating higher than CONTEXT at this point.  But Art Cashin said we are due for a rally tomorrow on technical "cycle" grounds.  

Thu, 07/12/2012 - 20:13 | Link to Comment Buck Johnson
Buck Johnson's picture

Yea China GDP once announced and as everyone suspect will be negative it will definitely show (along with Cummins and other industries that do most of their business in China and in developing nations) that the Chinese manufacturing system has fewer orders which mean less things to manufacture which means lower GDP.  Also Art is thinking an old paradigm where so many red days have to have some green/up days, I don't think that will happen. 

People and financial institutions are sensing that the end is coming to this whole game and they are positioning themselves for when things implode.  The sick problem is that many of these foreign and US people and investors who invest with these financial institutions better hope that there accounts are segregated and funded.  But if I had to place a million dollar bet on the collapse, they will find out that client funds where used and they can't get it out of europe or wherever.

Thu, 07/12/2012 - 16:36 | Link to Comment Timmay
Timmay's picture

Market is down? What market?  Interventions are down.

Thu, 07/12/2012 - 16:40 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Bullish Interventions, Bearish Truth

Thu, 07/12/2012 - 16:49 | Link to Comment Muppet of the U...
Muppet of the Universe's picture

BTFD!

Thu, 07/12/2012 - 16:37 | Link to Comment TrainWreck1
TrainWreck1's picture

Not worried.

The next QE will work. (snort)

 

Thu, 07/12/2012 - 16:37 | Link to Comment Meesohaawnee
Meesohaawnee's picture

i look at days like today and reflect,laugh how we all thought the internet stock boom was the biggest equity fraud.. Think again. ..at least there were actually people. buying things selling things. corrections ,etc.

Thu, 07/12/2012 - 16:39 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Okey Dokey - here we go.

ZEROHEDGE RECOMMENDS BUY S&P: 15,000% UPSIDE

That should fix it !;o)

Thu, 07/12/2012 - 16:52 | Link to Comment time2blowitup
time2blowitup's picture

You meant Goldman

Thu, 07/12/2012 - 16:44 | Link to Comment Hype Alert
Hype Alert's picture

It seems very counter productive to expect QEIII and yet have all the little machines holding the market up and running up the EOD.  I mean seriously, can Cramer come on and throw a tantrum in this environment?  I hardly think so.

Thu, 07/12/2012 - 16:51 | Link to Comment Soda Popinski
Soda Popinski's picture

Looks like Sprotts buying up any silver left on the open market, at least $220 million worth.  Blythe and Co.  need start coming up with some more paper notes to cover.

Thu, 07/12/2012 - 16:58 | Link to Comment kito
kito's picture

thank the good Lord for the Plunge Protection Team.....the last 2 were great days for them....both saw the dow heading fast and hard, calvary on horseback..........into 3 digit red zone.... they repelled the attacks....forcing their enemy to retreat..........mr. sack on his way to receiving his 5th star......................

Thu, 07/12/2012 - 16:59 | Link to Comment bnbdnb
bnbdnb's picture

VIX is useless.

Thu, 07/12/2012 - 17:01 | Link to Comment slaughterer
slaughterer's picture

VIX is the primary instrument of Fed market intervention.  Use accordingly.  

Thu, 07/12/2012 - 17:06 | Link to Comment bnbdnb
bnbdnb's picture

You'll need to elaborate on this one.

Thu, 07/12/2012 - 17:04 | Link to Comment Muppet of the U...
Muppet of the Universe's picture

Amen. Just hasn't been the same since the last dip. But, you know what crashes real hard on really bad days? P&Ds.  & there are a lot of em.  Gotta catch em all!

Thu, 07/12/2012 - 17:01 | Link to Comment Sudden Debt
Sudden Debt's picture

oh well... maybe next year than....
who needs QE anyway? not me....
but it would be nice though... for my PM's and all...
oh wel.... I'll just keep on stacking and preparing for the worst a bit longuer.

Thu, 07/12/2012 - 17:02 | Link to Comment Skip Danger
Thu, 07/12/2012 - 17:07 | Link to Comment Duke of Con Dao
Duke of Con Dao's picture

Calculated Risk on Investing:  (he'll probably sue me for this...) 

 YouTube - Real Estate Guru Bill McBride on Kanye West's Novel Asset Management Approach: An Analysis

Thu, 07/12/2012 - 17:13 | Link to Comment ptoemmes
ptoemmes's picture

And you thought Tyler was kidding: http://www.youtube.com/watch?v=sMVVCPemajw

 

Psst - I think it's a fake just like the market.

Thu, 07/12/2012 - 17:17 | Link to Comment f16hoser
f16hoser's picture

I'll bet everyone a years pay Benny gooses the markets tomorrow with at least 2 Billion in POMO........ Seven down days in a row heading into a weekend? Fat Chance!

Thu, 07/12/2012 - 17:35 | Link to Comment q99x2
q99x2's picture

Well how else you susposed to sell high and buy low if you can't ramp the market beforehand.

Thu, 07/12/2012 - 17:44 | Link to Comment Meesohaawnee
Meesohaawnee's picture

F16--of course ben is gonna goose the market with grammas money. how else do you distract the masses away from JMP s problem. a 5 billion loss cannot be the headline. the headline needs to be "markets break loosing streak".

Fri, 07/13/2012 - 09:57 | Link to Comment f16hoser
f16hoser's picture

Concurr

Thu, 07/12/2012 - 18:08 | Link to Comment disabledvet
disabledvet's picture

What's new? Healthcare..."as a tax." short the market at you're own risk folks!

Thu, 07/12/2012 - 19:59 | Link to Comment Getting Old Sucks
Getting Old Sucks's picture

LOL, Don't forget you have to make out a 1099 for your doctor, dentist, landlord, mechanic, travel agent, supermarket, on, and on, and on, and on...............

Thu, 07/12/2012 - 18:10 | Link to Comment ZeroAvatar
ZeroAvatar's picture

I want me one of them there 'Rally Monkeys'.  Aren't they the ones that clash the two symbals together over and over?  Every time my wife starts in with one of her "You need to start making some money" rants I'll just press the rally monkey button.  CHING!  CHING!  CHING!  I can't HEAR you....la la la la la la(fingers in ears).

Thu, 07/12/2012 - 20:44 | Link to Comment orangegeek
orangegeek's picture

The Dow broke early June support channel yesterday.  Today the Dow closed below this support again.

 

http://bullandbearmash.com/index/djia/daily/

 

Downside may be picking up momentum.

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