ES -2% As Volume Surges

Tyler Durden's picture

Equity and credit markets are in close sync as broad derisking is evident everywhere. Energy, Materials, and Financials are the underperformers. HYG, the high-yield bond ETF, is notably underperforming both equity and high-yield credit spreads as its momentum-chasers exit fast and professionals find it the easiest / most-liquid instrument for hedging.

We have talked extensively about the bond-stuffing we suspect has been going on with HYG and we worry that an extende period of weakness could force creation units to be removed (uncreated) which will force selling into the cash HY bond markets. This is the exact reason that professionals have been stuffing HYG to avoid any real secondary pricing adjustments and the illiquidity. Equities are already notably rich relative to HY credit's outlook but if we see forced selling in HY bonds, then expect equities to drop significantly further to meet with reality.

Spanish bond spreads are at the day's wides (+30bps) as the rest of the core and periphery are also seeing spreads leaking wider. EIB bonds are 4bps wider as EFSF is 7bps wider - contagion is spreading to the core very rapidly.

CONTEXT is pointing to significantly lower ES here as TSY 2s10s30s and Oil (as well as AUDJPY) are the main drivers.

Chart: Bloomberg

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digitlman's picture

Just like a boat: the more water it takes on, the faster it sinks.

WestVillageIdiot's picture

But how many boats with gaping holes in them continue to pop back up like a cork?  This market is Lazarus on steroids.  Every time you think it is dead some miracle worker, with a megaphone, comes along and breathes life into it. 

Do we really believe this is the real leg down?  Just think how many of us bears were on the sidelines in the crash of 2009 due to the fact that we had been skinned so many times before. 

Be cautious, be careful, be skeptical. 


Happy Thanksgiving!!

GeneMarchbanks's picture

Mo-mo's exit stage right, haters to the left.

Stumpy's picture

Can you help me explain this one? In the last 3 days, SIRI +8,66% and Nasdaq -6,04%.

I loaded up on SIRI Dec 2011 @ 1.75 puts last friday due to this divergence. Due dilligence failed on my part it seems. I do know that SIRI is one of the algo's favorite, so it's heavily manipulated near option expiration date.

bill1102inf's picture

??Why would you trade options that require algo's to manipulate them at opex ?

Stumpy's picture

Maybe because I'm "not-so-smart" money. Still not completely dumb though. I know about the manipulation, but I wasn't expecting an inverse correlation with Nasdaq during this hightened volatility period. At least I bought PUTS, at some point it should/will/have to/may/need to go down.

WestVillageIdiot's picture

While you are at it please explain SBUX, LULU, CMG, PCLN, EL, and a whole variety of other overpriced darling stocks. 

kito's picture

and my DOG finally barks!!!!!!!!!!!!!!!!!!!!

bill1102inf's picture

Wow, gold priced in ES isnt looking too good

fuu's picture

Your $1700 before $1800 call seems to have come true. Bravo.

WestVillageIdiot's picture

When walking in the jungle throw your spears cautiously. 

Cash + PMs + liquor + (fill in the blank) = the best chance to make it through this mess in one piece

You are not a sailor that has been out to sea for 24 months.  Don't fall in love with the first thing you see.  Love slowly and love as many as you can. 

augie's picture

Love slowly and love as many as you can.

i think the west village is rubbing off on you; might wanna get tested.

I'm gonna love as many puts as i can, just tested below the 61.8 from the 1373.5 high :)

Catullus's picture

1190 seems to be the Wooosh line today.

kito's picture

i heard bernanke and draghi sold off their shares in HPQ!!!!!!!!!!!!! 


Mr Lennon Hendrix's picture

Where is Robo, or am I going to have to write it for him....

Uncle Gorilla is letting everyone know who runs this town.  Money is moving into paper, because paper is god!

adr's picture

Funny, what happened to the $120 demand based non speculative price of oil?  If $75 oil can exist in the same month as $100 oil then so can $50 oil. The price has nothing to do with what is actually being used. The price only reflects the need of the contract holder to buy or sell to cover other bets. When the other bets go sour, selling crude is the cover.

Mr Lennon Hendrix's picture

You are correct to a point.  With supply decreasing you are looking at a long term price increase.  It is true that the volatility in the market makes for a good cover to trade oil at a wide spread, but the trendline will continue to move higher.

GeoffreyT's picture

It never ceases to amaze me that every fuck-knuckle on the planet wants to hit the bid... AFTER a 500-point decline in DJ and a $100 drop in Gold.


Conversely, when Gold was up around $1800 the intraday price action was characterised by lunatic slams into the ask, and fuck-all pullback.


Then, when all the fucktards on the planet have charged onto the wrong side, it's "chocks away" and time to gut some really dumb fish.


Today's Gold action has been illustrative: every time it tries to bounce more than a few bucks, some fuckwit slams into the bid and drives it down 3-4x the bid-ask gap in five or six seconds. What possible purpose could that serve?

(The same thing was happening at the offer when gold was making its last parabolic idiot-surge to $1800)


It's obvously happening in size - otherwise it would not be sufficient to move the market. (It crosses my mind that it may be yet another hedge fund going fratz... )

So it's little wonder that these retards needs bailing out all the time - they do the same top-and-bottom ticking that GS's forex team is now famous for.


Given that the entire investment community knows that the political class and its camp-followers are going to drive the purchasing power of every currency to zero, it beggars belief that, after a $100 pullback, nobody is interested in doing anything to gold except trying to short it... $100 lower than they could have a week ago (when nobody except me was interested in shorting).

Anyhow... as I wrote earlier today: I've covered the second half of my $1793 gold short, and am now long Gold from $1702, targeting $1725 then $1750.