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One Explanation For Today's Irrational Exuberance

Tyler Durden's picture


Since the EU-Summit, US and European equity markets have (in general) outperformed. From being in sync before the Summit, US equities went into the weekend with a sell-off, which then spurred a short-squeeze push as the S&P 500 was over-exuberant (relative to European equities) on the way up at the start of last week. That cracked back to reality at the end of last week - squeezing the over-levered longs to a significant underperformance relative to European equities. It would appear that in the last 24 hours, US equities are now rallying back to that European 'surreality'. Surreal because European stocks remain dramatically exuberant relative to European (peripheral spreads unch and AAA massively bid) and US (Treasuries bid) bonds and European corporate and financial credit. As we stand, the S&P 500 has retraced back to Europe's 'fair' perspective.

Europe's BE 500 (S&P 500 Equivalent) versus the S&P 500 since the EU Summit...


and Europe's equity market remain in a world of its own relative to credit markets...

VIX has overshot this equity strength but is leaking back higher now (inverted below)...

Certainly seems like it's easy to use the infinitely sellable vol market to ramp equities to where 'they' need them - as the S&P managed to scramble back close to unch for the month (and week).

Charts: Bloomberg


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Fri, 07/13/2012 - 13:50 | 2613575 Gringo Viejo
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Another explanation: Manipulated markets day after day after day after day. Tiresome and eventually, catastrophic.

Fri, 07/13/2012 - 13:58 | 2613613 stocktivity
stocktivity's picture

Another explanation...It's all Bullshit!!

Fri, 07/13/2012 - 14:08 | 2613691 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1, yes it is...

I write about our National Debt (about to clock over $130,000 per taxpayer), Gold and six fun facts about my new home town at my blog!

Fri, 07/13/2012 - 14:11 | 2613707 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Are you going to jump in front of me all day?


Fri, 07/13/2012 - 14:22 | 2613769 derek_vineyard
derek_vineyard's picture

too many eyes watching and waiting for crisis.....a watched pot never boils

Fri, 07/13/2012 - 15:29 | 2614131 saturn
saturn's picture

There is very secret EU summit tomorrow and the Skynet knows it! (Skynet = everyone except you!)

Fri, 07/13/2012 - 16:32 | 2614394 obejoyful
obejoyful's picture

I was watching the real estate bubble and it boiled

Fri, 07/13/2012 - 14:15 | 2613698 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Why is it irrational exuberence when the dxy goes down, but then it makes sense when the euro goes down?  Because UST yields are at lows when stocks are pushed higher?

The Fiat Ponzi knows no bounds when the President's Working Group on Financial Markets has the ammo of the UST and Fed behind it.  All while POMO auctions continue.  Here is your QE!

Official President's Working Group on Financial Markets Executive Order:

Both the dollar and euro are shit stained fiat currencies that are manipulated by Central Banks who more than anything are trying to squeeze the middle class into the lower class by raising asset prices, lowering wages (due to the purchasing power of fiat) while unemployment rages on thanks to treaties such as NAFTA that sent jobs overseas where people are treated like slaves.

Fri, 07/13/2012 - 14:23 | 2613773 whstlblwr
whstlblwr's picture

Be my BITCH! Bernanke you see you don't need to ACTUALLY print.

"Fed's Lockhart says Fed may need to 'respond more aggressively'

Fri, 07/13/2012 - 14:51 | 2613906 geno-econ
geno-econ's picture

Lennon right on regarding trade agreements that boost machinery  exoorts from US first year or two only to have it used to manufacture consumer goods for imports to the US in much greater volumes in subsequent years because market access is part of the agreements .  So who promotes Congress to pass these agreements??  Answer--Multinationals with no national loyalties to workers or any obligation to pay taxes, such as GE  Wierd system of economics which has finally caused inevitable outcome combined with Keynesian Voodoo and banking shadow manipulation.

Fri, 07/13/2012 - 14:45 | 2613873 hedgehog9999
hedgehog9999's picture

It is total bullshit!!!!!, good that he was arrested but why were the others not arrested?  this moron is obviously not connected.

I should add that his close family members and his VP's should go to jail maybe on lesser aiding and abbeting fraud, etc.

Fri, 07/13/2012 - 14:32 | 2613812 slaughterer
slaughterer's picture

Anyone who thinks this irrational exuberance will end today is not paying attention to the MM max pain pins on large-cap tech (GOOG, AMZN, PCLN, AMZN, etc.) weekly options.  QQQ will explode out of the gate on Monday: if GOOG 2Q EPS on Thursday confirms, then we will be reaching that "terminal high" before the 30-day expiration period. 

Fri, 07/13/2012 - 14:52 | 2613908 fonzannoon
fonzannoon's picture

Anyone trading on macro news and fundamentals should just be committed at this point.

Fri, 07/13/2012 - 14:38 | 2613835 Shizzmoney
Shizzmoney's picture

I would just figure its Friday and they want the stock market to end on "a good note" so that the bankers feel good on theirs yachts (we paid for) before the "Market" get back to reality on Monday.

JPM is up $1.32......makes absolutely 100% no sense.

Fri, 07/13/2012 - 14:44 | 2613871 slaughterer
slaughterer's picture

This post facto explanation is fine, but: what is the next compression trade Batman?

Fri, 07/13/2012 - 21:09 | 2614968 Buck Johnson
Buck Johnson's picture

Yep, thats more like it.  Because the economy of the world is screeching to a halt and they have to keep the game going at least until after the election.  I don't think it will happen, I think something will burst and Obama will have to deal with it along with the rest of the govt..

Fri, 07/13/2012 - 13:52 | 2613585 lsbumblebee
lsbumblebee's picture

My guess is that as long as we continue to get reports of massive fraud on Wall Street the market will never need QE3.

Fri, 07/13/2012 - 13:52 | 2613586 john_connor
john_connor's picture

looks like a technical trade on low volume.  nothing more, nothing less. 

Fri, 07/13/2012 - 13:53 | 2613594 fonzannoon
fonzannoon's picture

Yep. 9 months and running

Fri, 07/13/2012 - 13:55 | 2613603 Tsar Pointless
Tsar Pointless's picture

Only 9 months you say?

Try 40 and counting, since March 2009.

Fri, 07/13/2012 - 14:02 | 2613650 fonzannoon
fonzannoon's picture


Fed May Need to Begin New Asset Purchases, Lockhart Says

Fri, 07/13/2012 - 14:25 | 2613781 whstlblwr
whstlblwr's picture

We are all in the rocking boat. Don't look over and don't fucking stand up. I'm with you Fed Bitches, ALL IN!

Fri, 07/13/2012 - 14:35 | 2613829 slaughterer
slaughterer's picture

Look at EZ bank equities today (esp DB) by comparison to US global banks for further  confirmation of the above ES/EZ arbitration/compression explanation for exuberance.    

Fri, 07/13/2012 - 14:46 | 2613878 gjp
gjp's picture

It all depends on your time frame.  Over the past 2-3 years, ES have dramatically outperformed EZ, both banks and the general market.  Broader indexes have outperformed by 30% or more in constant currency terms.  If ES are going to catch up to EZ it should be in the downward direction, notwithstanding short-term fluctuations.

But the whole thing is bullshit now anyway, it's just pokemon cards, pay as much or as little funny money as you like.

Fri, 07/13/2012 - 15:14 | 2614048 geno-econ
geno-econ's picture

Comrad Conner--Could be as you say if on low volume, debunking idea that overseas buyers are seeking curruncy refuge through equities.  However low volume has been constant meaning institutional investors on sidelines as well as retail trade absent from market.  When does the macro picture get priced in , or is it ?   Dow now close to all time high of 14,000, before sudden 2008 crash and credit freeze.  We are worse off now with hope fading on global scale.   Something Wrong

Fri, 07/13/2012 - 13:56 | 2613601 francis_sawyer
francis_sawyer's picture

 "One Explanation For Today's Irrational Exuberance:"



Fri, 07/13/2012 - 13:55 | 2613604 pleseus
pleseus's picture

This rally was expected after so many down days.  Look to fade this rally.  Outlook for the economy is quite poor despite all the QE3 hope floating around.  Trade QE3 when QE3 is announced.

Fri, 07/13/2012 - 14:12 | 2613714 Conman
Conman's picture

Ya those were some brutal down days no?

Fri, 07/13/2012 - 14:48 | 2613886 gjp
gjp's picture

Seriously.  Most of those days were flat, nothing more than 1.5%, total downdraft what, less than 3%?  Wow, bear market or what?  Oversold!  Back up the truck!

Fri, 07/13/2012 - 13:56 | 2613606 Kristian
Kristian's picture

Just look at the dollar: dollar up, market down and vice versa. Just the way those HFT's are programmed.

Fri, 07/13/2012 - 13:57 | 2613609 mckee
mckee's picture

WOPR and Skynet in a brutal game of PacMan?

Fri, 07/13/2012 - 13:58 | 2613611 realtick
realtick's picture

Whoever is responsible for creating your charts should be fired immediately.

Fri, 07/13/2012 - 13:59 | 2613631 Winston Churchill
Winston Churchill's picture

Just feeding the birds.

Black swans.

Fri, 07/13/2012 - 14:06 | 2613672 hugovanderbubble
hugovanderbubble's picture


Fri, 07/13/2012 - 14:07 | 2613680 g3h
g3h's picture

But, but...


Why is DAX up 2%?

Fri, 07/13/2012 - 14:18 | 2613746 Village Smithy
Village Smithy's picture

Because people are realizing that they are earning soverign rates on junk bonds and they want out.

Fri, 07/13/2012 - 14:23 | 2613775 walküre
walküre's picture

It's part of the BANK RUN

Money isn't safe. At least with equities in major German firms the capital is represented. Forget valuations. This is the new flight to safety. Shares may lose value but unless the firms go BK, the equity is ok.

Sovereigns will all get haircuts rather sooner than later.

It is a panic melt-up.

Fri, 07/13/2012 - 14:08 | 2613690 bankofvol
bankofvol's picture

    Well done by JPM if you have 4Billion loss when people expect 2B, then just leak to the press 9B number and then on earnings announce 4B and everyone is happy. Well done.
    In behavioural finance this is called "Anchoring"

Fri, 07/13/2012 - 14:11 | 2613697 orangegeek
orangegeek's picture

SP500 hourly chart currently shows upside with brutally low volume.  At the end of the corrective wave, the volume tends to dry up.


Following this is usually a motive wave in the opposite direction. 


It's 2p EDT - could see a big sell off going into the weekend.

Fri, 07/13/2012 - 14:10 | 2613704 Conman
Conman's picture

People junked me right when i commented last night  to BTFD dummy after italy was downgraded. There's  always a rally after eu sovereign gets downgraded. Don't know why. Just the facts.

Fri, 07/13/2012 - 14:15 | 2613736 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Do you want a cookie?

Fri, 07/13/2012 - 14:18 | 2613748 Conman
Conman's picture

Nah i'll strok my electronically held fiat  instead. Happy 13th all, peace out !

Fri, 07/13/2012 - 14:15 | 2613735 Village Smithy
Village Smithy's picture

To me it's the same simple story, too much ZIRP money chasing too little quality assets. Sure Euro equities suck but they start to look good compared to bonds that should be paying 2 to 3 times what they are if their true risk was considered. We could be looking at a post Jackson Hole redux here where the trillions that have been printed and parked in the past 4 years starts flowing into equities, commodities and PMs. God help the middle class.

Fri, 07/13/2012 - 14:20 | 2613757 Harvey Lee Oswald
Harvey Lee Oswald's picture

Looks like a trap to me. Pump equities and release bad news on Friday the 13th. Big boys selling into this rally and hoping to leave some retail investors (if they even exist) with the bag.


Expect terrible earnings and equity weakness next week would be my best guess. But fuck if I know.

Fri, 07/13/2012 - 14:22 | 2613770 Everybodys All ...
Everybodys All American's picture

Don't try to rationalize the irrational.

Fri, 07/13/2012 - 14:23 | 2613774 Mr_Wonderful
Mr_Wonderful's picture

Well, these are computers and therefore extremely technical. They milk the market rather efficiently both ways. It went down to the 50-day MA in six losing sessions, now it´s bouncing off that. Business as usual.

Fri, 07/13/2012 - 14:24 | 2613780 blueridgeviews
blueridgeviews's picture

Another explanation for todays irrational exuberance is the markets are completely manipulated and thus, detached from reality. 

Look at the financial headlines today. Not a single piece of news that would suggest anything in the world is going to hget better. In fact, it looks like the world economy is in a recession.

Today's market move should scare every one to death for someone is trying to mask the devastation that is surely to follow.

Fri, 07/13/2012 - 14:29 | 2613806 walküre
walküre's picture

Where else do you park money when bonds and sovereigns get junked or worse yet, need a haircut?

This is a PANIC DRIVEN MELT UP from super wealthy investors freaking out they are holding all this synthetic digital wealth. What should they do with billions of Euros or Dollars? Convert to physical? They will do that but they cannot possibly accumulate enough and they know that as well. So they buy equities in their last ditch attempt to securing their positions.

For us peons it is a different story. Buy physical and stay out of equities. The rough ride is ahead. When the heavy lifting comes and the tough negotiations start, the big boyz can call the shots. We can't. They hold majority stakes and they will always get preferential treatment.

Fri, 07/13/2012 - 15:30 | 2614143 Bobportlandor
Bobportlandor's picture

You are so right!

The little guy has a chance of gaining in wealth and the big guys are fighting to see who can maintain their wealth. There will be few who do and most will become chum.


Bank failures

MF Global



The crash of the titans, that's how I see it too.

Fri, 07/13/2012 - 17:25 | 2614584 hedgehog9999
hedgehog9999's picture

No this is pure and simple manipulation. The game is totally rigged if you still had any doubts.

Here is the deal , the manipulators want QEIII, Bernanke speaks next week and while he is doing it, they will tank the market badly to try an influence him, he knows it and hence the ramp so the down damage next week will be "contained" using fed speak.... that probably means 100+ points give or take.....


Fri, 07/13/2012 - 14:30 | 2613809 Meesohaawnee
Meesohaawnee's picture

The short ban is still in effect. Why do some still use "technicals"? Techs exist when the market is "free" normal price discovery. this is the farthest from it. A complete total fraud. thanks Ben.  For those that still luv techs. Check out the  "Daves Daily" Awesome stuff !

Fri, 07/13/2012 - 15:01 | 2613959 Mr_Wonderful
Mr_Wonderful's picture

Yet we are close to very important technical levels. The 50-day MA is at 1335 and the 200-day one at 1310-20. The spread between the two has been steadily narrowing since May. Soon the twain shall meet. Severe turbulance is to be expected.

Fri, 07/13/2012 - 14:32 | 2613815 adr
adr's picture

If you really want to check something out, go look at the volume in gasoline futures over the past two months. Perhaps that is why the pump price never went down. Massive speculation driving gasoline far higher than the per barrel price of oil would suggest. $2.81 is back to early may levels when oil was $10 a barrel higher.

Hang the speculators or we all die.

Fri, 07/13/2012 - 14:36 | 2613831 mayhem
mayhem's picture

Its just Roulette with a magnet.

Fri, 07/13/2012 - 14:39 | 2613842 NEOSERF
NEOSERF's picture

REAL news just goes unreported now or is pushed below the cheerleading headlines:...

The sales decline hit 16.1pc in June, year-on-year, in Ford's traditional 19 western European markets.

French, Italian and Spanish car sales have all tumbled in the first half, while those in Germany remained flat, rounding off a gloomy period for Europe's auto industry as it battles government austerity and economic downturn.

"The economic environment remains very difficult," Roelant de Waard, Ford of Europe's sales chief, said in a statement. The company said first-half sales by all automakers hit their lowest level in Europe since 1994.

He said the launch of new products could give the group sales momentum in the second half of the year.

The eurozone debt crisis and sagging consumer demand are weighing on earnings at mid-market automakers that had already struggled, or failed, to stay profitable in Europe last year.

Last month, Ford blamed Europe for overseas losses expected to have tripled in the second quarter from the $190m recorded in the first.
Fri, 07/13/2012 - 14:41 | 2613852 geewhiz190
geewhiz190's picture

more and more of the defensive big caps are going increasingly parabolic, CL, KMB, WMT.  up volume is getting more and more concentrated in interest sensitive groups-utilities, closed end bond funds. i suppose the yeild on the 10 year could go to 1%, driving even more desperate buyers into the current hot area-"dividend paying stocks", but the whole thing just gets longer and longer in the tooth. things take longer to happen then you thought they would, then they happen faster than you thought they could. this could drag on before any real inflection points are reached-or it could all be over monday.  trying to figure the whys and wherefores is pretty pointless as we're probably only truly cognizant of a tiny percentage of what drives prices. manipulation seems pretty easy to do on such light overall activity. i knew guys in the 80's who told me how they would goose the dow at 3:59, it was pretty easy actually.

Fri, 07/13/2012 - 14:49 | 2613889 mayhem
mayhem's picture

there is a lot of work holding the market here today. None of "them" want a repeat of Thursday's close.

Fri, 07/13/2012 - 14:56 | 2613930 Meesohaawnee
Meesohaawnee's picture

its to divert the attention away from jamie.. planned weeks ago.

Fri, 07/13/2012 - 15:03 | 2613974 Boilermaker
Boilermaker's picture

My summation of why the SPX is up 20 handles on nothing was much more simple.

It's fraud.

Fri, 07/13/2012 - 15:10 | 2614027 SDRII
Fri, 07/13/2012 - 15:17 | 2614077 Mr_Wonderful
Mr_Wonderful's picture

The market is almost without fail at a high just before some really bad shift hits the fan so I think Citi´s

"The Market Will Form A 'Terminal' High"

piece which the Tylers covered yesterday makes sense. By Oct. severe govt. spending cuts will hit and then higher capital gains tax in the new year. A market that anticipates a fall ahead will of course rally to better make room for and facilitate distribution when it will be needed.

Fri, 07/13/2012 - 15:54 | 2614254 Village Smithy
Village Smithy's picture

With you there. The free money will flow in and drive equities to extreme valuations, then pop.

Fri, 07/13/2012 - 16:09 | 2614306 Mr_Wonderful
Mr_Wonderful's picture

Well, it was standard market behavior long before trading programs. But I wonder if this model is being increasingly overextended in recent time. For example the DOW five years ago was exactly where it is now. Two years, it was at 6600, it has taken three years to somehow claw back. Maybe a year to the next bottom with increasing rate of crashes in the coming years? Only time will tell.

Sat, 07/14/2012 - 12:22 | 2615783 LooseLee
LooseLee's picture

I was always under the assumtion that the market was 'forward looking' by about 6 months. Today's ramp implies the economy is vastly improving 6 months from now (January 2013). I'm sorry. I don't see things in January being any better than now. Someone please explain the reasoning/tenet that the market looks 'forward'. Looks to me like it is looking in a 9 month backwards mirror.... I understand your premise ("A market that anticipates a fall ahead will of course rally to better make room for and facilitate distribution when it will be needed"), but it negates the 'forward looking' tenet because the distribution you speak of would be happening now and not six months from now.

Fri, 07/13/2012 - 15:26 | 2614124 mayhem
mayhem's picture

there is no QE3 coming anytime soon... just more rumors and articles that state "now the odds for QE3 are up." I like the idea that this is a pump before the dump... we will see soon enough I guess. Time to recycle my options.

Fri, 07/13/2012 - 15:34 | 2614160 dragoneyes74
dragoneyes74's picture

I also think there's some flatening of positions due to Sir Pump-a-lot speaking to Congress next week.  

Fri, 07/13/2012 - 15:37 | 2614176 Vince Clortho
Vince Clortho's picture

The reason for the melt up is that the "market" is being manipulated.  It is the same crap that has been going on for a long time.  There is no need to reference any charts.

Fri, 07/13/2012 - 16:19 | 2614348 dcb
dcb's picture

hard to guess, but based on prior patterns the europeans and asains sell off tonight, but good buy tomm (monday) a bit lower.

no idea but I think the fact we didn't breech last weeks low is bullish for the time being. I expected one more day of lower lows before going upsdide

Fri, 07/13/2012 - 16:41 | 2614427 Mr_Wonderful
Mr_Wonderful's picture

There is always tons of propaganda in the market as elsewhere but I don´t think we should permanently fall in love it. It´s an extremely fast moving world. You have to be very nimble indeed. Bear in mind that in this environment ideas and concepts can easily become overbought and -sold.

Regrettably, when you study long-term history the consistent thread is deception. It has been the cornerstone of military doctrine for thousands of years and certainly plays a major role in the marketplace. Well, there´s a fine line between deception and fraud and at some point success due to fraud has to reverse, become overbought if you will. Then you have these crashes. The bear market that started in 2001 already seems especially harsh in this regard as it has already crashed twice by 50%. Nobody knows how long this bear will last but I think we can expect increasing frequency in its crashes in the coming years.


Fri, 07/13/2012 - 17:16 | 2614566 hedgehog9999
hedgehog9999's picture

Anything with the name Peregrine is crooked....

There was a company 11 or 12 years ago Peregrine Systems who cooked their books for years and the assholes never got charged, in the end they sold to BMC Software after defrauding all their investors......of which I was one.......and now this guy...

I don't know what 's with the Peregrine name but stay away from anything that has that name associated with their company!!!

Sat, 07/14/2012 - 04:33 | 2615339 falak pema
falak pema's picture

maybe Peregrine in olde french meant a crooked stick with a wicked kick. I know that the "sourciers", the ones that look for underground water, carry a crooked stick to find the trace of underground water and the stick inclines to the pull of a magnetic impulse when water is not too far under, like it had an inbuilt lodestone. And hey presto you can drill your well right there.

Sounds very Peregrine to me this story of hidden wealth. Maybe your crooked sticked Peregrine dikk hood-winked you out of your water well. 

Sat, 07/14/2012 - 13:37 | 2615989 Grand Supercycle
Grand Supercycle's picture

Equity rally can resume as overbought USDX daily & weekly chart commences overdue retracement while EURUSD selling ceases for now. This results in SPX / DOW choppy weekly charts reverting to neutral.

This remains a constant and will not change:
* USDX monthly indicators [ie big picture] continue to warn of significant long term USD upside. (thus EURUSD & AUDUSD etc bearish)
* SPX monthly indicators [ie big picture] continue to warn of significant long term downside for equities which will be worse than 2008.

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