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Stocks Drink Gold's Kool Aid Milkshake

Tyler Durden's picture





 

Equities managed to rally after slumping on heavy volume to the 1340 level (scene of crime for Greek election, Spanish bailout, and EU-Summit) pushing up to close at the mid-June swing high levels and post EU-Summit close levels around 1358 (back over its 50DMA). Total volume for the S&P 500 e-mini (ES) was just below average but the average trade size was dismal - around the lowest of the year. Whether due to VIX options expiration squeeze sending VXX and other derivatives tumbling (with VIX almost testing a 15 handle intraday); or a safety 'algo' running things up and over VWAP; or a reflexive reaction to bad is good and Bernanke has our backs no matter what happens, equities pushed 20 points off their lows but stagnated for much of the afternoon. The surge in stocks far outpaced risk-assets and what was more worrisome was the notable divergence in gold as the afternoon wore on - if this was QE-hope then the main QE-sensitive asset class of choice was not playing along at all into the close. Gold and Silver ended the day down modestly, Copper worse, but WTI ended the day up 2.3% on the week and back over $89. Treasuries pushed higher in yields (oh yes very QE-on?) - no higher in yield on the week with the long-end underperforming. FX markets were a little more aggressive - like Treasuries - and extended their rallies relative to USD with AUD now up almost 1% and the USD now down 0.36% on the week - which is interesting given Gold is also down around 0.5% on the week.

Gold diverged lower as Equities drank its milkshake...

As stocks saw the lowest average trade size of the year (aside from holiday days) - lower pane...

 

As ES tested the Maginot line of 1340 and auctioned back up to the recent highs of 1360 (with large average trade size into the close)...[click for large chart]

 

As ES tore 4 sigma across VWAP (red line) amid far lower volumes (lower pane)...[click for large chart]

Acros models, we note that the support from VXX selling in the equity ETF space was diminat in bringing SPY back up (upper left) and as we rallied so risk-assets in general began to increase in systemic correlation (lower right) which tends to be far less of a QE-on trade. As we plunged (upper right) so equities and CONTEXT (proxy for risk assets) recoupled wioth reality - but as stocks took off once again, so risk-assets in general did not participate as excitedly...

 

Perhaps we will get some clarity tomorrow as today's VIX OPEX is over and relieves the massive squeeze in the short-end (that saw VXX hugely rich to its intrinsic value)...

and we started to see that VIX leaked higher all afternoon even as stocks stayed high. What is clear (hopefully) from the chart below - as the SPY selloff accelerated so VXX stayed considerably more bullish - which dragged SPY higher; and then once SPY and VXX had recoupled - sure enough SPY went dead with no lift - you decide what the driver was...

Interestingly, Gold and Silver are almost perfectly in sync post the EU Summit at around +0.6%, Copper up around 4.5% but WTI up a generous 12.3% - so much for the cheap gas tax cut...

Charts: Bloomberg and Capital Context

 

Bonus Chart: JPM is Unchanged from the pre-EU-Summit ramp's beginning - whereas the rest of the major financials are up around 5-6%...


 


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Tue, 07/17/2012 - 16:40 | Link to Comment derek_vineyard
derek_vineyard's picture

Fed adopted a third mandate today:  To destroy zero hedge membership.

Tue, 07/17/2012 - 16:45 | Link to Comment The Monkey
The Monkey's picture

No where to go but up. Short interest was so large that it will take a major move to burn it off.

Tue, 07/17/2012 - 18:19 | Link to Comment Jay Gould Esq.
Jay Gould Esq.'s picture

"Drainage ! Drained dry. I'm so sorry. Here -- you have a milkshake, and I have a milkshake, and I have a straw. There it is, that's a straw, you see ? You watching ? And my straw reaches acroooooooss the room, and starts to drink your milkshake... I... drink... your... milkshake !"

Tue, 07/17/2012 - 16:40 | Link to Comment Gubbmint Cheese
Gubbmint Cheese's picture

I drink your milkshake.. I drink it all up!!

 

 

Tue, 07/17/2012 - 17:11 | Link to Comment Manthong
Manthong's picture

It seems like this, too..

http://www.youtube.com/watch?v=aA9OqUuA6a0

Tue, 07/17/2012 - 16:41 | Link to Comment Snakeeyes
Tue, 07/17/2012 - 16:43 | Link to Comment RobotTrader
RobotTrader's picture

Everybody sitting in cash waiting for a repeat of 2010, 2011, scared to death of the "Fiscal Cliff" and "Europe Crisis" is now in a panic to buy stocks.

 

Funny how they are buying the ones that warned like TXN, INTC, VMW, EMC, etc. because "the worst is already priced in".

LOL....

The game never changes.

You cannot underestimate the power of cheap money for such a long period of time, bringing out the "Animal Spirits".

Tue, 07/17/2012 - 17:05 | Link to Comment GrinandBearit
GrinandBearit's picture

Hey Captain Hindsight, you don't trade... stop pretending.

Tue, 07/17/2012 - 17:21 | Link to Comment Canaduh
Canaduh's picture

Hey now, I've been day trading on RoboTraders advice for 2 years now, and things are great!  I just bought my 3rd hovercraft, and am working on getting the permits for a private helicopter pad on the roof of my floating castle. Things are looking up, yup.

Tue, 07/17/2012 - 20:19 | Link to Comment chump666
chump666's picture

lol

Tue, 07/17/2012 - 17:07 | Link to Comment The Monkey
The Monkey's picture

So true. Prices correct a bit, then buyers pile in on neutral to poor macro news. Don't worry about it because stimulus is on the way and any bad news just amps the case for stimulus and stocks.

Easiest money ever. Long only funds have to buy as money is always coming in. Add ultra low volume and the Bernanke put, and there is no telling where this sucker will top out.

Tue, 07/17/2012 - 17:32 | Link to Comment derek_vineyard
derek_vineyard's picture

learn japanese, robo

Tue, 07/17/2012 - 17:32 | Link to Comment derek_vineyard
derek_vineyard's picture

learn japanese, robo

Tue, 07/17/2012 - 16:43 | Link to Comment Shizzmoney
Shizzmoney's picture

My Gold brings all the Bulls to the yard,

And their like, my wealth is better than yours;

my wealth is better than yours!

I could teach you, but I'd have to monetize in fiat.

Wed, 07/18/2012 - 02:25 | Link to Comment AgShaman
AgShaman's picture

nicely done.

 

Tue, 07/17/2012 - 16:52 | Link to Comment GlomarHabu
GlomarHabu's picture

If you mess around in the stock marked make sure you also have the Jim Jones flavor of the moment kool aid handy... It's a shame ...

Tyler gave us enough senarios I thought I was at a Bedoin wedding feast, the cuisine of which you NEVER want to experience.

If you can't hurl this ...well, you're really a sick person.

http://www.snopes.com/food/prepare/camel.asp

Tue, 07/17/2012 - 17:03 | Link to Comment JR
JR's picture

Yes, it is to those people - the “Bernanke has our backs no matter what happens” crowd – to whom Bernanke speaks. These are the people whose only interests are in equities going up or in insider market manipulation for short term profit.   Every time bankers say Europe is fixed, stocks go up. Every time Bernanke says don’t worry, he’s doing everything he can, the big players wink and their portfolios respond accordingly.

In the choice of picking the nation of their fathers and how to preserve it, these people pick their stocks. They would rather have the price of their stock rise than freedom and their country. They’re pretty small.

Yes, the market can rise, temporarily, with each announcement that the EU crisis has been solved, or that Greece and Spain and all the others have agreed to the EU plan or that Bernanke is going to “sacrifice” the savers to help the economy. And if you are one of Bernanke’s cult followers, what you hear is that your stupid stock price is going to go up. But the economy knows that what he means is, we will water down the currency, we will put in jeopardy more and more businesses and American taxpayers for the stock market and Wall Street bankers.

It is a very selfish, short sighted view. But it is a game of diminishing importance because Bernanke is destroying the most important ingredient of the market and that is confidence. If true investors can’t be confident using the data that they find for their investment strategies, then they can’t have confidence in investing in the future, in what’s going to happen. The Fed-dependent sycophants are like beggars on the Street waiting for Bernanke to walk by and give each one a shiny new apple; the rest of us are interested in more than a shiny apple, and that is a free market where an investor or consumer can make honest judgments about the future.

Tue, 07/17/2012 - 17:18 | Link to Comment adr
adr's picture

CockNballsChannel said that stocks surged after dropping because at first Ben didn't give any QE, but then traders realized he didn't say no to QE3, so it is still on the table.

What is it 30% up in the stock market on hopes of QE that hasn't materialized?

Tue, 07/17/2012 - 17:47 | Link to Comment The Monkey
The Monkey's picture

Everybody knows QE is on the way. There is no other option. And, we all know how markets respond to QE. They go up.

So, if the global economy tanks, QE, and then off to the races.

If the economy improves, then, off to the races anyway.

This is the win/win argument, and it's been working now for 3 years running.

Tue, 07/17/2012 - 23:12 | Link to Comment Savyindallas
Savyindallas's picture

Yeah--it's working great for the tens of millions of homeless and unemployed, the millions of college grads saddled with debt, living wi their parents and the 50 million or so living on food stamps. By all measures, Bernanke is a smashing success. He'd better be careful, as their are millions who would love to smash his face.

Tue, 07/17/2012 - 21:34 | Link to Comment EclecticParrot
EclecticParrot's picture

Well, consider CNBS's (Cock 'N' Bull Story's) poor ratings and key sponsor list (brokers, insurance) and it makes sense they'd trot out the 'expert' Liesman to first refute Santelli's truths about Bernanke & LIBOR, then to give an "understandable" explanation for the market reversal (the absence of No = Yes; or, Benji can't tell us now cuz the "open" committee must think they're a democracy, etc.). Delving into the intricacies of the HFTs would not prompt Uncle Clyde to re-fund his Ameritrade IRA due to this 'resilient' market, as pom-pom Pisan(t)i might say.

Those off their meds may examine the testimony tape closely, which reveals a curious ear-pull at precisely 10:45 by Benny (the name, not uncoincidentally, slang for amphetamines), a clear signal to his secretary to begin buying heavily in the Fed's IB account.  By contrast, followers of the Tylers will credit the 'tickle algo' for kicking in once the only open positions left were daytrading shorts, who were gently goosed out of their positions over the remaining 5 hours with small but insistent, pecked-to-death-by-a-duck computer driven trades, as soothing as a gentle rain on a Sunday afternoon.

Tue, 07/17/2012 - 17:13 | Link to Comment Paul Atreides
Paul Atreides's picture

You know if I wanted to get back into the stock market at this point I would be picking up TZA, SKF, VXX, EDZ, FXP, BGZ and TBT at the appropriate times but I'm not going to. Why? because when it comes time to cash them out the fiat I recieve will be almost worthless, theres a good chance I won't be able to cash them out at all and I have a moral obligation to no longer support the fraud and corruption in these financial so called markets.

If you can't touch it you don't own it. Physical precious metals and guns all the way bichez!!!!!!

Tue, 07/17/2012 - 17:14 | Link to Comment adr
adr's picture

MEANWHILE IN REALITY LAND:

Did you hear that the Nurburgring is bankrupt and will be forced to close without a 60 million Euro injection? 60 million for the racetrack is better spent than any cash for banks.

BUT THE GLOBAL ECONOMY IS DOING GREAT!!!

I don't think the sheeple will really notice until Disney World hangs a giant closed sign. Have you seen International Drive in Orlando lately? I think they could turn it into a modern Route 66 memorial theme park soon, the rusted out husks of stores and abandoned hotels look perfect for that.

Tue, 07/17/2012 - 17:32 | Link to Comment SemperFord
SemperFord's picture

Racing is actually very important and pushes new technoligies which is why we have disc brakes, variable valve timing(which makes smaller engines feel like larger engines while being more efficient) electronic fuel injection, better understanding of shocks and suspension geometry for handling and a smooth ride, etc. Sadly Kalifornia has been closing tracks for decades :(

Tue, 07/17/2012 - 17:52 | Link to Comment buzzsaw99
buzzsaw99's picture

Drainage Eli, drainage!

Tue, 07/17/2012 - 19:18 | Link to Comment dragoneyes74
dragoneyes74's picture

Like it's been said on ZH many times, Bernanke doesn't have to do QE3 until everything tanks.  Eventually, the markets will comply.  I've been thinking since winter that August would be the most corrupt, and therefore likely, timing for QE3, but if the markets don't tank, I'm sure it will be pushed into September, at which point I think Bernanke HAS to do it because it's the last chance to ensure the markets are looking good for the election and as an added bonus September gives oil less time to get crazy and drive gas prices skyward.  If true, that makes the July and potential August non-announcements likely candidates for big moves to the short side, and even bigger profits when it comes time to change directions for the print-a-thon.      

Tue, 07/17/2012 - 20:57 | Link to Comment dragoneyes74
dragoneyes74's picture

I trade silver, gold and the dollar almost exclusively.  Stocks make no sense to me.  

Tue, 07/17/2012 - 20:27 | Link to Comment chump666
chump666's picture

Weak short squeeze and no extended bull run means bull trap.  USD bids should begin outta Asia again, that and Asian stocks should start to the sell cycle once again.  Three central banks (BoE, PBoC and now the Fed) in three weeks have failed to ignite a 2009 re-run.  Why?  Because they are done and...nothing can be done.  The commodity cycle is starting to collapse, that happens kiss equity bulls good bye.

We have swing trades to June and July tops and short positions into the trading ranges...until something big hits and the Fed then attempts an all in trade. But then it could be too late.

Market is breaking down.

Tue, 07/17/2012 - 20:35 | Link to Comment The Monkey
The Monkey's picture

I could just as easily argue that we are days or weeks away from massive Chinese stimulus, US housing market has bottomed and credit is growing again. Add the Fed and you are really looking at the birth of a new bull.

Wed, 07/18/2012 - 04:15 | Link to Comment TheObsoleteMan
TheObsoleteMan's picture

Many stocks are at 52 week highs {except for the mining stocks of course}, why buy the top? That goes against everything I have ever learned. Especially with this set up! Trading volume is day in, day out low, so up tick days tell you little. When, if, QE3 is announced, all of the upside WILL HAVE ALLREADY BEEN PRICED IN. That is when I expect a massive downdraft, with volume behind it. Smart traders are selling now.  A little here, a little there. I am telling you, NOW IS THE TIME TO BUY METALS. We have been given a gift, that the metals have been priced this low, for this long. Time is about up though, as they won't be this cheap much longer.

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