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Financials Implode As Volatility And Volume Explodes
We have been warning that the stocks of the major US financials are on weak ground for a few weeks as credit (and implied vol) markets for the TBTFs had been underperforming notably. Today saw the financials ETF, XLF, have the largest down day in three months (dropping over two standard deviations), breaking its uptrend and heading for its 50DMA. As volumes in stocks and stock futures surged to year-highs, we note that the major financials were much worse hit than the broad ETF, roughly separated into 3 groups: Good (JPM, WFC), Bad (GS, C, BAC, GE), and Ugly (MS).
While the market is 'only' down around 2%, it is worth noting that Financials and Energy stocks are back at five-week lows, while Industrials and Materials are back at two-month lows as the growthium hope fades.
The stocks of the major financial names are down notably in the last few weeks (and most specifically post LTRO2) with many breaking trend and moving-average support today as they catch up to their CDS weakness. Morgan Stanley is definitely the most worrisome once again with CDS at 350bps and stock down over 15% from early Feb highs.
US financial credit has been flashing warning signals for a month but this time stocks are tracking lower with CDS (we can only hope BofA covered their 'tactical' long credit trade before this latest full retracement to year's wides). Obviously stocks have further to fall to catch up to reality as risk premia from the real world gets priced into credit first...
The financials ETF fell around 2.5% on the day (or over 2 standard deviations) as we wonder whether the uncertainty of global growth mixed with the re-emergence of European event risk is pushing us back into the Q3 2011 vol regime...
While equities fell consistently all day, broad risk assets also dropped as CONTEXT led the downswing modestly with a late day stabilization in Treasuries and AUDJPY enough to hold ES (the e-mini S&P futures contract) at 1340. The high correlation between risk assets suggests this is much more broad derisking than some simple profit-taking.
Credit markets remain under pressure - especially high yield - with HY17 pointing to an S&P around 1300 given current risk premia. As we noted for the last week, the up-in-quality rotation continues as IG remains bid relative to risk (but be careful if you use LQD to trade this view as it is much more exposed to financials than you would want for a safety play).
In FX, JPY strength was the only standout as carry was removed and AUD underperformed versus the USD. EUR weakness helped push the USD up 0.5% this week as it kept leaking higher into the close.
Treasuries rallied handsomely off overnight high yields (7-9bps) to end the day down 2-3bps in yield on the week as the curve flattened and 2s10s30s fell dragging risk lower.
Commodities were headline makers once again. Silver dominated down over 5% on the week now but was more like playing high beta catch up to last week's underperformance of Gold in the upswing. WTI is the week's best performer so far (down only 1.65% under $105 again) as Gold stabilized around $1675 for much of the US day session.
The vol term structure snapped flatter today, catching short-dated premium sellers fingers as it tends to, ripping to its flattest in 3 weeks as VIX jumped almost 3 vols to around 21% (back above its 50DMA for the first time since Thanksgiving), with its biggest rise in three months (a 3 standard deviation jump in vol).
Charts: Bloomberg and Capital Context
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But we are in a recovery!!!
XLF, have the largest down day in three months ... Financials are following the transports so now two pillars of the Bull mkt are in trouble.
http://seekingalpha.com/article/391391-stalking-the-bear-trouble-in-transports
Kind of ridiculous that anyone was still on the short side of volatility. My grandma could have nailed that trade.
Been short the vol since October 2011 at 34.40. Rolled the last sale at 22.20. bought back at 19.05 the short of December at 23.70 and sold at roll over at 22.20 the 14th of February the March contract
You wonna count by yourself how many vol points I am still up and how much "your grandma' " has made?
Because either you actually trade an instrument and you know it...or you are just one of the rest.
Being long vol is the surefire way to drive your money to 0....unless you know what you are doing. And there are few vol traders who make money constantly. I am one of them....not certainly going long.
Sorta like the stomach virus i had recently...
>>>Well done<<<
Bill, I love you. You are the only smile I muster each day. Thank you.
If only he were just a stone statue...
/sigh
Ceaser sets out to conquer
Bernanke sets out with a pooper scooper and shovels up crap from DC and WS
he should be in a civic boiler suit really Banzai with 'Dept of Crap' on his lapel
So much for my financials v gold price theory.
Clearly this is another "Once in a generation buying opportunity".
Cramer on CNBS tonight will no doubt be hitting the 'buy, buy, buy' button repeatedely for the Sheeple @ home.
Based on the chart it looks like Morgan Stanley isn't going to make it through the year.
http://chart.ly/hwdxbj8
This is exactly why I never buy a broken bank.
BTFD Ben.
Huh....and I thought all this was already 'priced in'....oh well, 'We're all FEELING better' according to CNBS and certainly they can hype some more 'QE' rumors to get us out of this mess.
What??? No 3 O'clock rumour... What gives???
The financials implode, volatility and volume explode.......where have I heard of that before......in the not too distant past......somewhere.....can't remember....
iPAD 3 in the morning!!!!! Oh Apple better not disapoint. The iPad 3 better be able to replace any computer you have and be able to reanimate the dead.
From the rumors and leaked specs it will look exactly the same but have a thinner bezel around the screen, ooooooooooohhhhh. But it'll be quad-core!!!! Wow, when dual core doesn't even matter for 99% of what anyone does on an iPad. But it might have a retina display with insane resolution, hopefully it will come complete with iSpecs reading glasses in that case. Ever seen a 10" screen with over 1000 lines of vertical resolution? It becomes impossible to read. Unless Apple just increases the pixel count of every icon keeping them the same size, negating the higher resolution anyway.
To pop Apple stock another $100 the iPad 3 needs to look different enough to get all the iZombies to need to switch to different flavored brains. A status symbol is only worth it if you can rub someone's face in your purchase. If you can't tell the difference between the 2 and 3 nobody needs to upgrade.
The market seems to be pricing in an iDissapointment. Don't know though, Greek PSI will be off the table tomorrow. All the market will care about is some fucking fuit company.
The central banks blew oil out. Hits 110 and caps the market, or the psychological 13000 on the Dow. That's the correction/arb trade righ there. QE3 is happening, albeit covertly with the swap lines to Europe. The biggest CB threat is the ECB, the Fed is just backstopping. On the EUR, it's supported by ECB buying not QE rumors. Think about it. Merkel is about to get tossed into the Rhine if inflation hits Germany. Already Bundesbank is laying down some attacks at the Italian madman and the ECB collective madness. Not only are the ECB running a war (it won't win) on all fronts, but it's acting like a rogue governing body. So the ECB is trying to keep the EUR bid, but Asia should put an end to that on USD buying. That and it (ECB) has completely distorted and confused the EZ bond/CDS markets. We are now in a correction and it should be deep, thanks to no volume meltups and marked up buying by HFTs that started in Jan, more selling coming. Major concern if oil diverges from equities, say Iran does something stupid. That's a stagflation trade, rates will start to move up as bond values get hammered on oil inflation fears, but equities will stay short. China is trouble, so no white night there. They won't BS yet until oil hits at least 85.
The PIIGS/yeild blow outs will start up again, it's all the ECB. They go all out again. Germany will have to end the most ridicules market fiscao in history: Greece a zombie that should be cut from the EU.
All the power to the ones that bought VIX/VX/TVIX posistions two weeks back, or short indexes, EUR etc. Good Tequila and Vodka Friday night. Modest here, $40 to $80 a bottle. Last about maybe two weeks
I've been long VXX for just under two weeks now and still in the red. We shall see.
you should have spread the VIX posistions, TVIX was gap up.
Certainly looks like the premium over spot has flopped from TVIX to UVXY. Perhaps folks are clambering out of TVIX to score a larger position in UVXY for the reverse split coming up at closing tomorrow. Or its just a version of momo chasing. Like I mentioned previously, I have been flipping TVIX and UVXY for a couple weeks now. But suddenly this evening, my HyperLazy sense is tingling. Something doesn't seem right. Can't seem to put a finger on it...
BTW, word of caution TVIX is an ETN while UVXY is an ETF. If Credit Suisse goes bust, they don't have to pay up on TVIX claims.
Unlikely Credit Suisse will go bust any-time soon. TVIX is mostly weekly positions. Yes, trading short term to longer term on the volatility curve. You probably noticed the bear signals of the VIX trailing along the bottom at 16 and 17. The trade is looking at breaking the Feb 15 spike (21), when markets tried to correct at that point. So there is a spread trade between 16 and 20. But the major correction is on and as I said could be deep. If the Greek PSI flops in 48hrs and NFP comes in under expectations plus an overbought market, plus oil capping rallies = volatility picking up.
All eyes on the HFTs.
Read you loud and clear. I am keeping my eyes peeled regardless, maybe I need a good stiff drink - where did I put that turpentine?
Props
wires:
some talk hedge funds have pulled out of Portuguese debt secondary markets as a consequence leaving the ECB as sole price support.
alright.
Growthium demands more hopium...or QE...or both. Bongs Away!
I'd short this market, but it aint a market.
i'm still writing off my loses from july 2010 two days before bennie started the presses. i wouldn't bet on anything (down). and by the way guys - gold still has a long way down to go - for 2 reasons. manipulation and need to sell hard assets to cover margins.
the markets will NOT be allowed to go down.
Very interesting that among the Financials, the one hardest hit was MS...
The same Morgan Stanley that is openly publishing their "long Gold" thesis.
Coincidence? Or are the Jackals simply preying on the one member of their troop that looks the most like a traitor...?
Good volume on down days...weak volume on up days, what could it all possibly mean ;-)
once the good money goes into TBs from europe gold will be down for a short time.
VIX up 15.62%
TVIX up 4.4%
TVIX - The investment seeks to replicate, net of expenses, the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index.
Well start seeking sucker. What are you waiting for?
Forget all the Vol ETF/ETN crap...if you know what you are doing, trade the futures. Or get out fast. The volatilty of the volatility is over 100%. Is a stationary series.
Amateurs not needed...or , welcome amateurs, but be ready to leave your money on the table for others to pick up.
Cannot be long VXX over two weeks and still hope to come out on top.