Financials Underperform Amid Lowest Volume Of The Year

Tyler Durden's picture

It seems bifurcated investors have well and truly deserted the markets as NYSE volumes (MVOLNYE on Bloomberg) closed at their lowest of the year and ES 25% below average volume. A slow and steady drop all day in risk assets stalled a little in the afternoon as newsflow dried up and broad risk markets added nothing to the selling pressure. Financials underperformed, making a late day recovery but losing much of that bounce into the close - though we note the machines managed to magically close ES perfectly at VWAP. Broadly credit and equity stayed in sync today but we noted HYG getting hammered in the afternoon - only to revert back to HY by the close. EURUSD held above 1.36 into the close with the USD obviously stronger and dragging down commodities with all but Copper losing ground from Friday's close.

Credit (HY and IG) markets for once stayed nicely in sync with equity markets - but the huge dip in HYG in the afternoon suggests (as we have pointed to again and again) that hedgers found its liquidity more useful than HY17 (the CDS index) as some technical issues with recent defaults might be creating angst in the latter. Fascinatingly - as we approached the close - HYG rallied smartly back up to its HY17 'brother' - we have pointed to this repeatedly as an opportunity for cross-desk arb.

This HY-HYG arbitrage trade is generally only available to institutions (given the ISDAs involved) but there are ways to play the cross-asset move in the retail ETF space and today's move in the SPY Arbitrage model (a model that attempts to mimic SPY performance via a weighted basket of Volatility (VXX), interest rates (TLT), and High Yield credit (HYG)) shows the divergence and convergence as it happened. Buying a weighted basket of the VXX, TLT, HYG against selling SPY (or vice versa), given the tightness of bid-offer spreads, can be profitably traded based on trigger levels and mean-reversion.

While not always as perfect as this (and not tradable by all), it is often a useful gauge for how disconnected SPY is from the broad top-down capital structure asset classes of rates/vol/credit on an intraday basis. The drop in HYG (which drove the Model down in the above chart) suggested that the equity market should have fallen but it remained somewhat resistant - and the disconnect from HY17 also helped to show that the HYG move was very technical (i.e. hedge flows) and not simply a broad risk-off move. Of course, with volume so weak, today's market seemed too thin to make any real judgments but still we closed near 'fair value' across these instruments.

Aggregate NYSE volume (MVOLNYE on Bloomberg) at its lowest of the year - incredible!

For some perspective on this volume - it appears we are running a few weeks ahead of the typical seasonal pattern of liquidity/volume drying up. This chart shows the seasonal averages (highs and lows also) of the MVOLNYE index from Bloomberg.

FX markets stabilized a little after Europe's close - though it is notable that JPY started to lose ground against the USD (after retracing over 75% of its intervention gap).

The afternoon's generally lackluster performance seemed most evident in CONTEXT as it did not partake of the dip lower in stocks. ES retraced back up to the risk-asset basket into the close. We would look for 2s10s30s to drop or TSY yield compression to be the bigger driver of a next leg down.

Gold managed to outperform away from Copper's exuberance (though Copper fell over 2% from early morning highs) - clinging to $1780 as Oil and Silver continued their high beta inverse performance relative to DXY's 0.74% rally.

Chart: Bloomberg

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bnbdnb's picture

No short covering, no volume. Slow melt down to 1000.

redpill's picture

Anyone have a tourniquet?  I think Unicredit is about to bleed out.

anyways's picture

@bnbdnb: u made me smile :-)

common_sense's picture

US Robotics from FED are into the market, with not too high short covering, not too much volume at all.... hummmm, may be now is a "normal" august, and september is coming?

Well everything is possible with US robotics from FED. They have enough money to push UP for several months, weeks or days?? Or the last rally was the effect of the last QE-Twist? so, nothing more at the horizon...

GeneMarchbanks's picture

Copper $ both up. Ramp was on cue.

El Viejo's picture

 "The end of Democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations."  Thomas Jefferson's picture

I'll take "Stock Market" For a $1000 Alex..The answer..."Unexplained Low Volume"......"What happens when a bunch of people planning to buy MSFT today, but saw that Buffett just did, and decide to pass?"

camaro68ss's picture

Famous tittys for  $200 please

slewie the pi-rat's picture

and the JeopardyTM answer is:

He Invented The Man-Bra 

(anyone anwered Robo_T will be disqualifed, disgraced, and dismembered + cue music here)


topcallingtroll's picture

Who was Kramer.

It was called the Bro.

Hansel's picture

Yep, this should not be happening in the middle of November.

Missiondweller's picture

The low volume reminds me of what old timers recalled from the 70's. Investors had left the market and volumes were abysmal.

chump666's picture

We have a liquidity slowdown, should have come maybe into mid/late December, but it is happening now.  Very bearish signal.  Italy is still the main focus, Monti budget will be laughed out of Italy's parliament.  If Germany is preparing for a EU country/s to exit.  Might as well place Italy at the top of that list.

The market ranges are looking very tight on tiny volumes.  If profit taking takes place + a panic, you'll have a massive leg down before th end of the year.

chump666's picture

Oh sh*t how on earth can we forget about the other trillion dollar Euro beat-down...Spain

The ECB is sidelined because the Germans don't want inflion.  SO Italy/Spain debt  sales were crap.

Shorts fixed.  Risk aversion on.  Tequila on tap. ah yeah

slaughterer's picture

If only it were as simple as setting some shorts and kicking back with Tequila and some Pixies vinyl, but ...

chump666's picture

I just did.  But no Pixies album playing in the background, which is a shame, excellent band.

Check your charts, with volumes this bad, tight/sideways ranges.  Another shock kicking in, probably Spain this time and something, maybe China sinking + profit taking going awkward etc

Georgesblog's picture

Smart people. Beyond water, food and shelter, no one should risk anything beyond securing the priorities. With all of the paper flying around, people should just bump their heads and give themselves amnesia.

pragmatic hobo's picture

I don't get it ... low-volume=higher-equity, no?

BobPaulson's picture

Volume AND indices down? Whoa, say it isn't so.

oldman's picture


Is this your idea of a joke? Where is the 'liquidity of the capital markets' or whatever they call it today?

Oh, no------this is not the end of confidence and trust, I hope------No money? What does this mean, can't you just put it on my credit card?

Looks like you dudes are right-----we are fishing in a froze-up sea;   

Now what?    just wait?

DN                                 om