Market Snapshot: Dow Jones Soars 400 Points On European Rescue Plan #42

Tyler Durden's picture

UPDATE: Moody's ITA downgrade took some shine off as EUR drops 60 pips and ES now 13pts off its highs. TSYs are 3-4bps lower in yields. Gold/Silver not moving much on it.

On the basis of old news, more promises, lack of any clarity, and Dexia's dump on the Belgian government, the equity markets staged a 4% rally in the last 45 minutes to end an incredible day. Our assumption is that this was simply the bounce that everyone expected as we seemed to have squeezed shorts into lunch and were limping back lower on AAPL disappointment. Quite clearly, there were a few uncomfortable equity shorts who were squeezed out rapidly and incessantly as the S&P massively outperformed credit as well as the broad basket of risk assets - even TSYs only managed to sell back to earlier day's high yields (as opposed to extending). Gold/Silver rallied (though well off week highs) as the USD dumped back near the week's lows and copper and oil rallied but again no where near as ebullient as stocks. Evidently, the equity move is exuberant at best but these squeezes seem able to maintain longer than anyone expects.

The clearest example of the exaggerated move in equities is probably against the broad-basket of risk assets known as CONTEXT which tracked very well all day but was simply unable to keep up with the covering in ES as we rallied. While it does not mean equities are absolutely expensive, it does imply there is a disconnect between risk appetites relatively speaking and would suggest equity weakness short-term (from our experience).

We had noted all day that credit was underperforming - and more noticeably that single-name credit was underperforming indices - suggesting forced long covering or horizon changes (from short to long) in macro to micro hedging. The indices in general did not initially follow ES but as the rally took hold they started to catch up (understandably so) but significantly underperformed ES as we closed.

AAPL was the story of the middle of the day as it failed to provide an iPhone 5 (all-singing-all-dancing awesomeness) and fell more than 5% at one point (testing its 200DMA) before ripping back higher to its VWAP and then a little more to close down around 0.6%. Once again - we have run out of adjectives to describe that kind of move in that market cap but whatever helped the market certainly saved a few hedge fund's years today!!

Sectorally, it is more what we would expect from a bounce day - the heavily shorted and prime-for-a-short-squeeze financials ripped almost 6.5% higher in that last 45 minutes. Amazingly, MS is now +3.25% from Friday's close, rallying 14.5% in the last 45 minutes with Goldman and Wells Fargo also making into the green on the week. In CDS land, MS opened 645/665 and closed 555/575 (still a little wider on close) in 5Y but 1Y remains 780/850 and was active today - moves in other financials were similar in style to MS (glide rally, jump wider early afternoon, then gap tighter into close) but lesser magnitude.

Enough of the superlatives...TSYs did not get quite as excited. 30Y did manage a 11bps rise in yields from today's low yields but was only just above the earlier high yields - significantly off the levels of yesterday still (as equities test them).

There was modest underperformance in the 5-7Y TSY bucket and that fits with the heaviest net-buying in corporate bond land today seen in the 3-7 and 7-12Y buckets respectively. For some perspective on the moves in the indices relative to single-names today IG was 0.5bps tighter while its fair-value widened 7.5bps (massively cheap to the index now) and HY managed a 1bps compression on the day (as opposed to 48bps decompression in intrinsics) but we do note that short-dated HY was wider all day. Just for further perspective the equity move today is equivlent to 37bps more compression in HY and 5.5bps compression in IG - another point of evidence that the rally was overdone (but that's optically clear we assume).

FX saw the USD dump as AUD ripped higher as did every other major (apart from JPY) as carry FX took off - it was initially delayed in its response but once we got going in ES it didn't take long to rip.

Precious metals and commodities all managed to rally back as the dollar lost ground with oil finding the day's highs but copper, gold, and silver all stayed well of the earlier day's highs. Silver clung to $30 at the close as oil peaked over $78.

All-in-all - an unbelievable last 45 minutes to what was making sense as a day so far with Bernanke's perspective early on. While we would prefer to fade this equity strength, we would suggest a half/third unit size as these squeezes can extend incredibly - though that seemed to be what we saw today - especially in the banks.

Late Update - by request our short-squeeze indicator shows two moments today that were good setups for notable potential squeezes - as the Goldman Short-Interest index hugely underperformed (which is good for shorts) and then greatly outperformed (squeezed) as the rallies came on...obviously not foolproof but nevertheless useful for some context.

Charts: Bloomberg

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GeneMarchbanks's picture

Let's not even talk about this... I'm just not ready, man. Someone tell me this much, has our collective Western culture gotten so dumbed down that this is now, not only acceptable, but the norm?


Next asshole to use the word "free" within six paragraphs of the word  'market" ... and I'll just... I'll I'll lose it.

12ToothAssassin's picture

Obviously because 42 is the answer to the universe.

WonderDawg's picture

We might have hit a near term low today, which will be followed by a month or two long rally. It goes against my every instinct to say that, which is why it's probably right.

Cdad's picture

I highly doubt that.  I think you got half a day the most.  And if the metals reverse and head up, which I think they will do tomorrow, it is game over for the S&P.

Zero hour is very, very close.

Ahmeexnal's picture

Give me a few more days to buy some more "junk" silver.

How about a EU fast track approval for Turkey full membership?

That should give us at least a month. But it would obliterate Turkey in the process.

Cdad's picture

The silver trade is ripe for a short squeeze.  I'm not sure you have a few more days in the paper market for silver, anyway.

As for Turkey...seriously, who cares?

Bicycle Repairman's picture

This is still a bear market, but you'd better understand THEY INTEND TO SQUEEZE EVERY SINGLE SHORT DRY on the way down.  They know exactly who the shorts are and what cards they are holding.  If you play, you lose.  You are public enemy #1.  They can f#ck you and everyone will applaud.

bid the soldiers shoot's picture

I think you mean that when it's not totally rigged and crooked, it has a downward bias.

I can live with that.

FreeNewEnergy's picture

Sorry, but silver is probably heading back to 17 per once all the ass-holes buying phyz at 20% over spot realize their massive mistake.

Not kidding and you can neg all you like, but check with me in 6 mo to a year and you'll kick yourself.

WonderDawg's picture

As always, time will tell. I suspect a rally is forthcoming, I just thought we would get closer to 1020 S&P, and we still might, but I think a rally is close at hand. Short term rally, but it will be a chance to make some quick money, and then roll over into puts for the collapse, which will take out the 2009 lows on the way down.

Jack Napier's picture

Patience my friend. 2 million put options on the S&P for shocktober means 1 of 2 things. Either TPTB are gearing up for some serious profits, or they are trying to fool everyone trying to ride their coat tails into getting sheared. Either way, there is about to be some movement and it never goes in a straight line.

WonderDawg's picture

Yep, patience is the key. I did sell my CMG puts today for a tidy profit. Not a home run, I came in a little late, but not bad. Still holding my March LULU puts for now, we'll see what happens the next couple of days. If it looks like this is the rally I'm expecting, I'll sell the puts and buy some index calls. If my forecast is correct, I see potential for a fairly enthusiastic rally for a couple of months. But again, I'll see how the next day or two looks before committing any capital one way or the other. In this environment, practice patience and keep your powder dry for the big moves.

WonderDawg's picture

Now that the dust has settled a little, I think it's possible this afternoon was just a bone-crushing short squeeze. I'm gonna sit tight, for now. Maybe we will drop down to 1010-1020. If we drop to 1020, that's the point I'll go long. If we bounce from here, well... I don't know. Fuck it. It's late and my brain is too fried for this shit.

boiltherich's picture

So long and thanks for all the fish.

jekyll island's picture

What do you get when you multiply 6 x 9?

Newsboy's picture

Is 42 your front chainring?

Motley Fool's picture

Market has gone full retard. :|

UGrev's picture

I don't think "Full Retard" fully describes the market. It's more like a multiple personality disorder coupled with manic depressive and seasonal affective disorder with a dash of schizophrenia for how it responds to the (rumor) voices in its head. 

UGrev's picture

No.. that's what people think you have when they walk by your office as you stare at the market and hear your expressions of complete and absolute bewilderment. Something along the lines of "WHAT THE SHIT, MOTHER FUCK, CRACK ASS.. STUPID FUCKIN... AAAAAAAAHHHH!!"

bid the soldiers shoot's picture

I see.

It's only when you hear that on the subway that it's Tourette's

TheFourthStooge-ing's picture

I don't think "Full Retard" fully describes the market. It's more like a multiple personality disorder coupled with manic depressive and seasonal affective disorder with a dash of schizophrenia for how it responds to the (rumor) voices in its head.

Oh, now I understand. The market has been elected to congress.


chet's picture

Yeah, why even try to apply rational analysis to this horseshit?  You want analysis:  It's horseshit.  There is your analysis.

boiltherich's picture

It was a rumor that Mayor Bloomberg ordered the police to arrest anybody south of 14th Street not wearing $2,000 shoes as OCCUPY WALL STREET protesters. 

disabledvet's picture

You forgot "demand 42: happy days reruns will be returned immediately to their rightful place...just after MASH reruns..while Cheers reruns will assume THEIR rightful place BEFORE MASH reruns."

Troublehoff's picture

Aye, too many socialists on there... it's so obvious what's going to happen if the 99%er people get their way. It won't be less government libertarianism. It will be socialism... :(


I tried to post this, but comments not uploading now:

Hi all,

First, thanks to all the protesters who are out there on the street even if the main stream media seems to be ignoring you.

I'm sure every one of these protesters has a different idea of what needs to change in modern western society which is why it's proving so difficult to speak with a single voice.

Personally, I'm not keen on the proposals listed above. They are socialistic and expect entitlements without responsibility. Also, what is fundamentally wrong with free trade?

I believe that what we need is lees government, more freedom, more transparency, and a money system where private institutions cannot create money out of thin air (i.e. abolish fractional reserve banking)..

I believe in welfare and health care but a person, if able should be expected to work in some capacity for these (even unemployed)..

do any of you think government can spend money more wisely than yourselves to deliver the services you yourselves require...?

when the government spends money badly, it is robbing you of your free time, or of a better standard of living, or of the possibility of an early retirement - there is no free lunch but with the original spirit that built the US and other western powerhouses, we could all enjoy a more prosperous, fairer society

BadKiTTy's picture

If you trade in this 'market' your money will be taken from you for free lol

reTARD's picture

Irrational exuberance? As my "idol" Alan Greenspan would say.

iNull's picture

It's all about power. TPTB cannot afford to lose right now or they will lose everything. So they will pull every trick, every stunt possible, no matter whether it is obvious or not. They don't care at this point. It's life or death for them. A cornered and dying animal can fight with surprising strength and visciousness. Expect no less.

That said, moving the market for an hour is not "moving the markets." They just bought themselves another day is all. The entire system could crash at any time.

bid the soldiers shoot's picture

TPTB are not worried about losing. They are worried about what life will look like after they win. They would like it to be more normal than most predictions. Normal or not, they'll be on top.

I respectfully disagree with your observation: "moving the market for an hour is not "moving the markets."

Do you know what they got done in that hour? The derivatives? The leverage? How many thousand stocks follow the DJIA when it moves one way or the other? How short were they when they covered at the low of the day, How long when they sold at the top? How much in profits did they remove from our wallets?

They don't call them TPTB because they don't know what they are doing.

Grinder74's picture











How's that?

mailll's picture

Allow me to make the correction.  MANIPULATED MARKET.  I hope this correction will set your mind at ease. 

mayhem_korner's picture

Fade reality.

Hookers and blow just showed up at CNBC's studios.

disabledvet's picture

This time through the front door! Woohoo!

Ellesmere's picture

When are those f*ckers going to leave the market alone !

Reminds me of Sisyphus rolling his public money-ball up the taxpayer hill to see it collapse all over again. Stupid.

Bicycle Repairman's picture

"When are those f*ckers going to leave the market alone !"

When you leave.

Mongo's picture

Collateralized Viagra...

CrankItTo11's picture

That's fantastic. I wonder when they deleted all the comments that most likely were there at some point. 

adr's picture

Well if the webpage stays down and my automatic payment doesn't get deducted and they use it as an excuse to hit me with a fee or raise my rate, I'll just stop paying them. Before I do that I might just take a few hundres out of a couple ATMs. Maybe I'll help the economy by buying a new car on the credit card. 

All bets are off with the bank of scum.

Josh Randall's picture

Apocalypse paused while the world goes to the restroom...will resume shortly

tekhneek's picture

Yeah well... that's just like, your opinion... man...

disabledvet's picture

Is that the chant of "collapse! collapse! collapse!" I heard from "the protesters"?

The4thStooge's picture

belgium has a government?

Piranhanoia's picture

Please, in the interest of humanity, stop using that word so carelessly. 

fuu's picture

He's angling for a Rory.

lano1106's picture

Yes, it is the Dexia board.


MarketTruth's picture

Bag of crap disguised as..........