Stocks Have Second Biggest Plunge Of 2012

Tyler Durden's picture

Treasury yields retraced more than 50% of their rise post-FOMC yesterday leaving them only marginally higher on the week as, despite another late afternoon light volume surge to VWAP, stocks closed with their second biggest daily loss of the year. Three days in a row now, ES (the S&P 500 e-mini futures contract) has closed at its VWAP - suggesting institutional blocks continue to look for opportune/efficient selling levels (as opposed to buying the dips which we are so used to). After Spain's auction debacle and the ISM Services miss, it seems that with no Fed standing guard that good is good but bad is not better anymore as the S&P 500 cash lost over 1% (down 2% from Monday's peak to today's trough). Financials underperformed and the majors (which we noted on Monday sagging after Europe's close) have been really hurt with Citi, BofA, and MS down 6 to 7% since then. Equity markets in the US and Europe played catch up once again to credit's more realistic assessment of the world as HYG (the high-yield bond ETF) is back at one-month lows, down 2.7% from its end-Feb highs (or five months worth of yield, oops). Investment grade credit (which remains rich to its fair-value) was not helped as Treasuries were the place of refuge for the day as 30Y yields dropped their most in 2012. Commodities suffered significant damage as Silver tumbled to meet Gold's loss for the week, both down 3% Copper and Oil also dropped notably and are now back in sync with the USD for the week -1% or so. Most major FX remained USD positive except for JPY which retraced its snap lower from yesterday as carry trades were generally exited (with EUR and AUD weakness mirroring JPY strength post-FOMC) leaving DXY near 3-week highs. Who-/What-ever was doing the buying in the afternoon clearly levered the position (using AAPL or options) as VIX dumped once again out of nowhere intraday - closing near its lows of the day. However, VIX did close up near one-month highs as it catches up to Europe's VIX flare. Given the drop in implied correlation (and in-line VIX-S&P move) we suspect the covered-call strategy of the year was coming undone a little at the seams as single-name vol underperformed.

European financials have converged in equity and credit and continue to sink. In the US, it is credit markets that remain far less sanguine - though today's weakness - especially in the majors suggests they are catching up to reality fast...

and US majors have been losing significant ground since Monday's European close...

but once again ES (the e-mini S&P future) retraced back to VWAP with the bulk of the volume surge in the selling period...

Commodities will likely dominate much of the news (despite the fact that stocks in context fell considerably more relative to the year's performance in the last two days).. Notice how gold and silver have recoupled on the week as have Oil and Copper with USD strength...


Treasuries were the big winners of the day with 10Y and 30Y having their best days of the year in terms of yield compression - having retraced more than half around Fib 61.8% actually) of yesterday's spike...

VIX managed to compress as stocks rallied but the drop in implied correlation, as VIX tracked stocks more or less - suggests single-name vol was bought back (protection sought) with more vigor than a macro overlay. This fits with the recent 'stock-picker's market' that has apparently evolved and the already steep term structure of index vol. Perhaps the easy money from covered-call writing is over...

The USD is up around 1% on the week with a notable divergence between JPY strength (carry cover) and AUD (trade deficit and carry unwind) and EUR (chaos emerging and Spain) weakness.

Overall a rather messy day with no real signsof dip-buyers (even with the retracement - as it looked more like algos feeding institutions). Cross-asset class correlation picked up considerably throughout the day (lower right) as broadly speaking, risk assets (CONTEXT - upper right) were sold more than equities for now (diverging with the late rally). VIX managed to increase to its credit-equity implied fair-value (lower left) before compressing into the close (as we mentioned above) while equity ETFs tracjed each other broadly efficiently (upper left) as VXX outpaced HYG's losses.

Charts: Bloomberg and Capital Context

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goldfish1's picture

Yes, because the reality of the whole stinking pile is coming to light. Here's from the comment section of SFGate regarding $1Trillion in student loans debacle:

Most Popular Comments paul_e_ester 6:57 AM on April 3, 2012

Once again we have a situation where the private sector makes the loans and collects the interest, as soon as the loan goes south the private investor is made whole by the taxpayer, Parasitic capitalism at its finest. Read more:

Future Tense's picture

Bill Gross was on CNBC today discussing his massive bet on QE3 saying that anytime the Fed has not come with additional easing the market has dropped 1500 points (at least).  Video here:

NewThor's picture

Stocks can go down?

WHOA. Who knew?

LawsofPhysics's picture

Exactly.  After shorting is outlawed, will selling be outlawed as well?  

DeadFred's picture

True, The Russell took out the 50 dma but closed above it. All the others have stayed above their 50s. Still when you look at the DOW it's hard to say the trend line is still intact. One more day to confirm this and all the people who bought in knowing it was a rally based on flim-flam, but still a rally, are going to jump ship. Will a 'magic bullet' announcement come from the Fed or BLS tomorrow or are they going to let a correction happen? I went full-bear last week so that's how I'm betting but a rally to new highs based on B(L)S numbers won't surprise me.

Yesterday the FOMC minutes said 'No new QE as long as the economy is showing signs of recovery'. Today the banks said 'Okay we'll oblige you'. They will get their candy one way or the other.

economics9698's picture

Uncle Ben is getting the dope ready.

NewThor's picture

Timewave ZERO. day 1. hurm.

franzpick's picture

The NDX has been the leader pointing the way upward from mid-Dec 2011's 2225 to yesterday's 2800, up 26%, with only the one early March downward gap which was covered the next day, followed by the uptrend resumption.

My screens say today's 2nd NDX gap down may not be similarly closed, and that the NDX will remain the leader, only now to the downside.  Closing the gap with 2 consecutive higher closes over 2790 would resume the 3-4 month uptrend, and my indicators say to bet against it:

surf0766's picture

Eat your pees and enjoy them

Cult_of_Reason's picture

Ben Bernanke makes a rare Wall Street appearance

After completing a series of public lectures in Washington, D.C. last week, Federal Reserve Chairman Ben Bernanke quietly slipped into New York City for a private luncheon on Friday with Wall Street executives.

Fortune has learned that attendees included Jamie Dimon (J.P. Morgan), Bob Diamond (Barclays), Brady Dougan (Credit Suisse), Larry Fink (Blackrock), Gerald Hassell (Bank of New York Mellon), Glenn Hutchins (Silver Lake), Colm Kelleher (Morgan Stanley), Brian Moynihan (Bank of America), Steve Schwarzman (Blackstone Group) and David Vinar (Goldman Sachs).

swissaustrian's picture

If all the different clan members meet with uncle Ben it's certainly not just an exchange of empty phrases. What's really going on? Another FED orchestrated bailout of a major Wall Street bank needed? 

LawsofPhysics's picture

Just once could it be a battle to the death?

NotApplicable's picture

You don't think they're killing folks already?

Legolas's picture

Nothing to see here, folks.  Keep moving along.

Cult_of_Reason's picture

Or another Fed orchestrated bailout of a major country (like Spain)?

They were probably discussing a scheme to siphon US taxpayer money from the Fed via Primary Dealers to fund IMF without the taxpayers and Congress knowing about it.

IMF chief demands more US cash to save Europe

gatorengineer's picture

In case your not up on current events the fed told congress last week that they were buying euro (junk) bonds....  No cooking or conspiracy required, its right out in the open.....  Well kind of out in the open, the only place that covered it was here.....


YesWeKahn's picture

I would remove the word "rare". I am sure that Bernanke has to brief his bosses on daily basis.

SheepDog-One's picture

Oh Bernank 'breaks bread' wow just like Jesus and all....LOL excuse me while I hurl in the trash can.

WillyGroper's picture

Perhaps with his loaves we could provide him with a rotting fish head.

DeadFred's picture

I see Lloyd sent a flunky. Too busy doing God's work i guess.

mayhem_korner's picture



Watch Brent run back to $126 next week when some patsy utters "test balloon" words that a wheelchair-bound CNBC sock puppet interprets as a guaranty of QE3.

ObungaBoy's picture


On Feb.29 just for 30 min 225 mln oz paper silver have been dropped on the market

Apr.03 just for about a hour 637 mln oz paper silver have been dropped on the market

The annual world production of silver for 2010 was 735 mln oz silver

Obviously silver is under attack

The margin call soon will close these short positions and we will see silver (and gold) skyrocketing

mayhem_korner's picture



Really?  Did you get a tip that Jamie D over at JPM is about to roll over on their SLV shorts?  I think they can manipulate this game a lot longer. 

Nice thing is we get lots of sale prices.

Fedaykinx's picture

i think you're right, i've been waiting for silver to get beat down into the 20's before i start buying again.  preferably 26ish.

mayhem_korner's picture



I'm not sure that will happen, either, but it could.  There are enormous, opposed forces at work batting silver prices between $30 or whatever is the tolerable "low" and $37 or so.  When the legitimate price will emerge is anyone's guess, but eventually it will.  Every one of these smackdowns is another round of finite ammo down the tubes.  Weak hands shake out, smart buyers take some physical, and the price gets pressured up to another boiling point.

I like to think of it as a battle between a starfish and its prey (e.g., clam).  The clam can resist for a long time on the strength of its muscles, but eventually will be outlasted by the starfish who is using suction.  Physical buyers are the starfish, JPM and the banksters are the clam.

NotApplicable's picture

Interesting analogy. I wouldn't liken JPM a clam though, but rather a clam shell.

The clam? PMs

The Starfish? Jamie Dimon and friends.

The suction? ZIRP and the infinite level of debt it allows as debt service goes to zero.

Physical buyers are just little sucker fish who get to live off of the scraps. Which, for a sucker fish, isn't a bad living.

Fedaykinx's picture

agreed again, i've been part of the starfish collective for a few years now; my hands are strong and my timeframe is measured in decades.  it's tempting to buy another slug right now but i think it's prudent to wait a while yet.  i'm actually comfortable with anything under $35... under $30 seems on sale for sure, and at that price i would be actively considering whether or not to pull the trigger.  i might buy half my normal amount before the end of the week and see what happens.

NotApplicable's picture

Given MFG's takecown of the Crimex and the real hedgers (producers), I can see the paper game lasting quite a bit longer, as I doubt that Celente, et al. will try and leverage the paper for cheap physical delivery again.

As for closing their shorts, my bet is that the JPM minions will keep doubling them until it all breaks and it no longer matters. There's no way they'd ever take the loss when they're operating on behalf of the Treasury/Fed/Satan.

Fedaykinx's picture

i sometimes wonder if the digital age lends such a degree of control that it will never break.

NotApplicable's picture

As long as it's accompanied by someone's magic checkbook and these pesky legal tender laws, there's no natural limit, as there's no meaningful resistance.

The second that people refuse to accept this magic currency, that's when it all collapses instantly. Before it gets that bad though, is the reactionary adjustment to currency value known as hyperinflation. Someone will want more and more in trade, up until they realize it's impossible to keep up. Then they revert to barter, as it's the only remaining honest transaction of value for value.

lasvegaspersona's picture

I suspect that in spite of our perspective of the battle in PMs that we are merely a speck. The finale will be amongst the big guys, the CBc and sovereigns. When one of them makes a break for the door THAT will be the deciding act. In the mean time we should just keep picking up scraps and try to figure out where to be standing when the big whatever hits.

DeadFred's picture

After the last attack (remember when multiple banks randomly dumped gold equal to Brazil's national reserves on the market as Ben turned from Ron Paul's questions to Maxine Water's) I read the plunge was stopped as the selling ran into long standing Chinese buy orders. I can't vouch for the accuracy of the report but these dumps are providing good buying opportunities for those who are still buying. Will they buy silver at 30 or do they decide if they back off a bit they can buy for 26. As long as the big players feel that selling into the plunge and repurchasing later is the best route the game goes on. When the players hold their positions then buy more at the bottom that's when it's game over.

Cathartes Aura's picture

good points in your posts here. . .

I can't help but wonder how long silver miners will be able to afford "digging it out of the ground" as the costs (oil) rise, but the paper price is artificially manipulated low.

buy, hold, physical.

exaengr's picture

If this is happening, the big 'paper short conspiracy', who says that it can't be stepped up even more?  Maybe this is some sort of extended ploy to suck all the 'prepper' cash into metals, then REALLY bring the pain on the COMEX (I am talking billions of ounces) short.  Just to test the mettle of stackers; see how many don't puke it up if the price (paper, mind you) goes back to the teens, for example.  Sure those of you who ran out of space in the backyard at $5 are pretty, but there are probably lots of latecomers at $40 basis who have Prilosec on autoship...

Paul Atreides's picture

If the market could speak it would be asking for more dolla...toilet paper.

catacl1sm's picture

It's just the Fed making the case for the Fed to initiate QE3.

mayhem_korner's picture



Let's see what happens to yields over the next couple US bond auctions.  A couple twenny bps jumps just might get Ben to soil his fruit of the looms.

catacl1sm's picture

Why do bond prices ever have to go up? the FED can buy all it wants with the fiat it makes at will. Sure, there'll be inflation, but they can just blame the evil orange juice speculators.

NotApplicable's picture

Surely you don't believe there's still a bond market, do you? I'd guess if those jumps happen, Geethner, Benron (or some of their minions) would be on the phone screaming at whatever bankster failed to keep up their end of the bargain.

"You front-run the Fed/Treasury as directed, or we'll Lehman your sorry ass! Then we'll throw you in jail for insider trading!"


mayhem_korner's picture



Sure there's a bond market.  The seller is the US Treasury and the buyers are the predetermined banks through which the Fed launders new money.  So we got buyer and seller - instant market!

swissaustrian's picture

PM miners were on sale today. Some look like bargains now.

Paul Atreides's picture

I have my eye on one but I am retail and to muppish to invest right now.

mayhem_korner's picture




Excellent "word".

Moe Howard's picture

Did he mean to say "two muppish"?

catacl1sm's picture

One muppish

two muppish

red muppish

blue muppish

swissaustrian's picture

If the fundamentals (low and relatively constant cash costs per oz, production growth / long mine life, reserves growth, low debt, politically stable jurisdictions etc.) are great, go ahead and buy.

I use a base case of $1500 for gold and $30 for silver for valueations.