Financials Surge Again As Post-Europe-Close Credit Outperforms

Tyler Durden's picture

Today saw NYSE trading volumes at their 3rd highest of the year and ES (the e-mini S&P 500 futures contract) saw its second highest volume of the year (though both still well below recent averages) as stocks managed marginal gains, outperformed handily by high yield credit. For the sixth day of the last seven ES closed only a smidge from where it opened but average trade size was dramatically higher (its highest since 8/31) which historically has suggested a short-term top (and certainly seems odd heading into tomorrow's European bond auctions). In a similar manner to yesterday, HY17 (the high yield credit index) surged (absolute and relative to ES and HYG) from the European close to US day session close (index RV to Europe and Index arbitrage seems much more of an effect than rerisking. The major Financials were among the best performers today once again (as XLF managed +1.13%) with BofA now up an impressive (if not ridiculous) 24% YTD (and Citi +19%). Perhaps of note is the fact that the major financial CDS rally stalled today with MS, GS, and JPM all leaking a little wider into the close. Treasuries continued their ain't-no-decoupling rally as the 10Y auction went well (beige Book mixed/weak) leaving longer-dated TSY yields near day (and year to date) lows and ES near day highs (sell EUR, buy anything USD-denominated?). The dollar is practically unchanged on the week now as EUR 1.27 (and GBP more so) weakness dragged it up (even as AUD rallied - helping stocks). Copper outperformed among the economically sensitive commodities as Gold gained modestly (slight beat of Silver) and Oil slid back to $101 and remains down on the week as Silver holds over 4% gains.

On Monday we saw stocks and credit in very good sync through the European session outperform and then decouple (green box 1) during the afternoon US session). Tuesday and Wednesday have seen a similarly well-synced equity-credit relationship through the European close but post-Europe very different. As far as boxes 2 and 3, we suspect that the HY (high yield credit) index is being held during European hours by relative-value trades against European indices and once that is closed, index arbitrage is playing a heavy hand (as the index was trading significantly cheap/wide to its underlying portfolio's fair-value. The compression between HYG (high-yield bond ETF) and HY remains a driver of the divergence between the two high-yield indices (but has largely been closed now) as HYG's NAV premium has also dropped. While headlines will look at this performance as indicative of risk-on, it feels very scrambly to us and furthermore has plenty of technicals (flow) impacting it also - HYG seems more 'real' for now (no matter how much it is over-bidding for junk-that-dealers-don't-want).

Whether it is rotation/rebalancing of implicitly underweight positions in index-tracking funds, a short-squeeze, arbs against CDS markets, or good-old fashioned momo-cashing, the major financials (most notably  BofA and Citi - though MS and GS have also impressed) have torn out of the gate this year. Noone really knows which or all of the above though the mortgage refi rumors and now chatter over 'what do they know' about Greek PSIs is being discussed. The only thing we can add to this incredible move is that CDS (which have rallied with stocks the last week or two), stalled this afternoon.

Volume was up today as was average trade size (lower pane of the chart above is average trade size of ES for today - that is not total volume) - dramatically so. The second biggest average trade size in ES in five months suggests a topping process (or at least has done many times before) and timing seems 'appropriate' heading into tomorrow's auctions.

VIX opened up and stayed up - not budging much as stocks rallied in the afternoon - sustaining the divergence between index and underlying demand for protection that we discussed last week.

While short-term correlations saw broad risk markets underperform stocks impressive afternoon strength (and as we noted above stocks also outperformed versus the basket of 'high yield bonds and interest rates and VIX'), opn a medium-term basis CONTEXT (the broad risk asset proxy) saw convergence of stocks UP to its relatively stable level. For now, AUDJPY, negatively correlated 2s10s30s, and to some extent Gold (more risk-on correlated in the short-term) have been the biggest drivers (and it appears TSY/2s10s30s is flip-flopping from positve to negatively correlated as days go by and from morning to afternoon).

As an aside, from the 12/30/11 close, Gold is up 4.95%, the S&P 500 is up 2.77%, and the Long Bond is -0.65%.

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disabledvet's picture

While we all know who actually has an ethical standard between the Buy and Sell always comes down to the same thing: who knows how to make money in the market.

jaffa's picture

Finance is often defined simply as the management of money or “funds” management. Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks. Thanks.
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Gubbmint Cheese's picture

Look at the one year German bund - money is leaving Euro in droves and making its way to the US - Euro money is pusing up the USD and buying stocks, bonds, and every flaming piece of shit (BAC) that isn't nailed down - because it thinks the US is a 'safe haven'.

one problem - there will be no economic decoupling.


Screwball's picture

Nothing worse than watching the wankin fuckin banks go up.  The insolvent, criminal bastards.

chump666's picture

Last gasp from Obama's feel good credit meltup.  Industrials got slammed, Asia will trade off that next few hrs.  Again if Asia buys up USDs and buys short end debt...rates are going up!  Mini crack up boom from end 2011 to 2012 is all on consumption.  Wow that will last...not.

Dow selling into the close was bearish.

Zero Govt's picture

"Financials Surge Again"

..only to provide an even better shorting opportunity ...Bombs Away :)


rocker's picture

It only proves that the Market is Manipulated by the HFTs, Banster Trading Desk and the FED.

Everybody knows what is going on in Europe and that the U.S. banks have about 10 trillion in cantagion.

Everybody knows that foreclosers have Not peaked yet. And the Banksters are the best sector today. LOL

What a pity. What a Ponzi Scam.  Don't forget what Greece and Italy have found out.

Goldman Sachs Rules the Financial World.  You better not forget it either.  WTF is going on anymore.

asteroids's picture

Doesn't this bullshit happen every year just before bonus's are announced, and then they sell off.

slewie the pi-rat's picture

slosh, slosh...

after the anti-tilson update and birinyi's ruler, i'm rotf + L0L abt the "3rd highest volume of year"

hi!  this is slewie w/ your market close:  volume remains in backwardation, so action remains in short supply.  those nickels in front of the steamrollers have turned into pennies.  hence, risk is increasing, so watch out, there, lil pardners, and don't forget to drink your fuking milk! 

YesWeKahn's picture

Bought a shit load of FAZ, will sell before JPM earnings.

DaBernank's picture

I thought FAZ was a bargain at $38! Doh! S will H the F eventually but these inverse ETFs have a short fuse.

The Swedish Chef's picture

And anyone who bought sub-$5 BAC is rapidly approaching a nice 40% profit in a couple of weeks...

rocker's picture

And Dick Bovie says they will tripple.  Better buy some tomorrow. 

I am in 100% Cash until something breaks. History is on my side.

The Swedish Chef's picture

At least you won´t be losing money apart from CPI times reality. 

Karl von Bahnhof's picture

C mon you swedish kuli, where TF is your original avatar... You know what i mean!

/ strong emphasis/

ekm's picture

Man with baits = quite big and quite smart money, very low financing or big institutional holders of financials that would like to unload

Fish = professional daily traders

Small Fish = Retail traders


Man buys BAC = throw the bait, and more bait and more bait (it's called Dark Inventory as per Izabella Kaminska of FT Alphaville). Fish notices and goes after the bait (somebody knows sth we don't know). Small fish notice and go after the bait (somebody knows sth we don't know). Than Man stops. Fish and Small Fish goes after the food bidding the price up. Than Man unloads the truck. Fish and Small Fish go exctatic and go after the food and buy more BAC. After the trucks are empty, Man leaves. Than Fish starts to eat Small Fish. Then Small Fish just vanishes.

Over and over and over and over.............................................................................

ebworthen's picture

Bank of America is perfect for a beginning of the year float job.

Notice that the most beaten down financials are the ones that have been ramped the most.

Another 2%-3% and they'll have any retail investors left and CALPERS buying BCA hand over fist.

Once the last are in the first will get out in less than the blink of an eye (HFT Algo's of the big boys, cha-ching!).



Yen Cross's picture


  If you think things are less expensive then JUNK ME!

Yen Cross's picture

What do all those " Pretty colors" Represent? [ C- Dad I think you are the most qualified , on an answer basis []

Apocalypse_Now's picture

"... and JPM all leaking a little wider into the close"

JPM is fleecing more of the sheeples. I just got an offer in the mail from them to open up a savings account for $100. But you have to deposit $10,000. The best part is that the account boasts basically a ZIRP.

In what fantasy world is it a good trade to give someone $10,000 in exchange for $100? Perhaps they are hoping the pods are all bad at math.

dcb's picture

those who put deposit accounts in the big banks are traitors in my view.

Bindar Dundat's picture

Maybe I am being simple minded here but could we be seeing inflation affecting the value of financials?  If we measured the value of these shares in constant 1971 dollars what would we see?     What about measuring the value in Oz's of gold?   Time to stop thinking in terms of dollars boys and girls because the games have changed and we are seeing so many things that have simply never happened before like negative yield German bonds .


We are fk'n done like dinner.



dcb's picture

I was getting sick of this, and have sold off a lot of stuff going up here. Have to say I was about to put some back into emerging markets as they crossed the 50 day mvwap (think that's it), and do my stop there. by speed line, which is what I usually use the top is 1300 on the s and p 1297. maybe 1303

I keep thinking where it goes to isn't programmed already and that does mess me up everything is at the top of each speed line, and europe and the euro looks to fall off a cliff.

dcb's picture

it should be noted that vfh the financial index today went above the 200 mvwap, so the volume surge could have been to push it aove this, draw in money and now there is a good base to try top support for a bid. the  bollenger bans do say break out, and the formation showing the squeeze there can indicate a turn the other way of course. 

jaffa's picture

The credit card advertising regulations include the Schumer box disclosure requirements. A large fraction of junk mail consists of credit card offers created from lists provided by the major credit reporting agencies. In the United States, the three major US credit bureaus allow consumers to opt out from related credit card solicitation offers via its Opt Out Pre Screen program. Thanks.
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jaffa's picture

The networks of financial businesses exist to create, negotiate, market, and trade in evermore complex financial products and services for their own as well as their clients’ accounts. Financial performance measures assess the efficiency and profitability of investments, the safety of debtors’ claims against assets, and the likelihood that derivative instruments will protect investors against a variety of market risks. Thanks.
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