Volume Crashes As Stocks End Unchanged

Tyler Durden's picture

Amid the lowest NYSE volume of the year (-24% from Friday - OPEX) and pretty much the lowest non-holiday-period volume in 9 years based on Bloomberg's NYSEVOL data, ES (the e-mini S&P 500 futures contract) ended the day almost perfectly unchanged underperforming 5Y investment grade and high-yield credit indices on the day as both moved to contract tights (their best levels since early August last year) even as their curves flattened. There has been lots of chatter about how the steepening of the short-end of the European sovereign bond markets (Italian 2s10s for instance) is a sign that all-is-well in the world again, well unfortunately the flattening of the short-end of US IG and HY credit markets sends a rather less positive signal than headlines might care to admit (as jump risk in the short-term remains 'high' relative to bullish momentum in the medium-term). At the same time, vol markets are showing extreme levels of short-term complacency as 1m VIX is almost at record low levels relative to 3m VIX (and diverging today from implied correlation). Broadly speaking , risk assets rallied into the US day session open only to sell off into the European close (with Sovereigns leaking back the most). The afternoon saw risk rallying as the path of least resistance appears to be up all the time there is no news. Stocks ended well off their highs of the day, in line with broad risk assets, as TSY yields rose 3-4bps higher, Oil and Copper 1.5-1.75% higher (outperformed) while Silver and Gold hugged USD weakness at around a 0.5% gain from Friday's close.

With a third of the quarter already done, this is shaping up to be an even worse quarter for banks that Q4. With trading volumes so far this year 18% lower than the Q4 (ex-Xmas), we can only assume that what they lose in volume they make up for in margin so expect your bid-offer spreads to widen (viciously exaggerating the decline in trading volume we suspect). The chart above shows the mind-blowingly bad NYSE stock volume appears to be the lowest non-holiday period trading volume we have seen in 9 years (or the data that we have from Bloomberg).


After tracking closely for the last few days, ES limped off into the close today as IG (investment grade) and HY (high yield) credit rallied on to close at five-month tights. HYG (the high yield bond ETF) gave some back at the close. ES downward reversion at the close pulled it to close at its VWAP suggesting very little aggressive positioning today though volume was heaviest as we sold off (from 10ET to 12ET) after which (the EU close) we leaked higher.

Under the surface, the bullish moves in credit spreads (which are undoubtedly positive) have the IG (above) and HY (below) credit indices trading at multi-month 'flat' levels. Typically we would expect a credit rally to be led by the front-end as default risk (liquidity-aided) dries up and we see jump risk removed from the market (also these shorter-dated maturities have lower durations and some risk control - though technicals can make them less liquid). In this rally we have seen the curve flatten (a more bearish move) suggesting that the exuberance that 5Y spreads have enjoyed (purple), both now trading extremely rich (tight) to where their underlying portfolio would suggest is fair (lower pane shows just how rich IG and HY are in 5Y and not in 3Y), is yet another reflection of complacency.

The skews will help understand: 5Y HY is 34bps rich (expensive to its portfolio's value) while 3Y HY is about 10bps cheap (wide) and in IG it was even more interesting with 5Y around 11bps rich ( a huge difference at around 10% of the index - equivalent to the S&P 500 trading at 1400 while the underlying stocks of the S&P 500 imply a fair-value of only 1260) while the 3Y IG is trading 4bps cheap (wide) of its fair-value.

The point is that understanding what is going on across the credit curve and indices relative to their underlying value suggests that professionals are positioning far less bullishly than 'opticals' would suggest (just as we noted last week in equity options skews, implied skewness, and kurtosis) and also below in volatility term structure steepness.

The chart shows the steepness of 1m implied vol over 3m implied vol. The lower the chart, the steeper the term structure and the more complacent short-dated volatility becomes relative to medium-term vol. The option expiration on Friday has an impact but we see almost record levels of relative complacency in short-term options vs medium-term. We find it fascinating that Goldman publishes a paper to push buy-write strategies at the same time as short-term vol is so low (if we were a suspicious, we would guess that GS got loaded with hedgies selling vol - covered calls - and were looking to unload some of that exposure to others). Of course, we could also be seeing event risk hedging across the Greek bond maturities in March by selling short-term vol to pay for vol that is the other side of this huge event.

FX markets were typically more active during the European day session and were relatively calm as Europeans and Asians left the market. EURUSD held above 1.30, Cable underperformed (the only major weaker against the USD) as JPY was very quiet. GBP and JPY's underperformance helped DXY outperform EUR for a change as the USD proxy only lost 0.5% from Friday.

Commodities separate this afternoon into 'fiat-related' and 'economic' as it were with Gold and Silver outperforming in line with USD's weakness (after some early exuberance in Silver) while Copper and Oil stayed together and outperformed as the latter toyed with $100 once again.


Charts: Bloomberg

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
slaughterer's picture

Have to admit, it got kind of boring today for us daytraders for a good 4 hours.   Had to whip out my "Best of Mountain" vinyl to keep awake.  

economics1996's picture

So what happens if it crashes before Uncle Ben prints?

RiverRoad's picture

That's the recipe right there.

Pegasus Muse's picture

Interesting.  O'bummer appears to be hastening the demise of the USD's Reserve Currency status.


India to pay gold instead of dollars for Iranian oil. Oil and gold markets stunned  

DEBKAfile Exclusive Report January 23, 2012, 5:57 PM (GMT+02:00)


India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, debkafile's intelligence and Iranian sources report exclusively.  Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.

By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.

The vast sums involved in these transactions are expected, furthermore, to boost the price of gold and depress the value of the dollar on world markets.

Iran's second largest customer after China, India purchases around $12 billion a year's worth of Iranian crude, or about 12 percent of its consumption. Delhi is to execute its transactions, according to our sources, through two state-owned banks: the Calcutta-based UCO Bank, whose board of directors is made up of Indian government and Reserve Bank of India representatives; and Halk Bankasi (Peoples Bank), Turkey's seventh largest bank which is owned by the government.

An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept dark.

India thus joins China in opting out of the US-led European sanctions against Iran's international oil and financial business. Turkey announced publicly last week that it would not adhere to any sanctions against Iran's nuclear program unless they were imposed by the United Nations Security Council.

The EU decision of Monday banned the signing of new oil contracts with Iran at once, while phasing out existing transactions by July 1, 2012, when the European embargo, like the measure enforced by the United States, becomes total. The European foreign ministers also approved a freeze on the assets of the Central Bank of Iran which handles all the country's oil transactions.

However, the damage those sanctions cause the Iranian economy will be substantially cushioned by the oil deals to be channeled through Turkish and Indian state banks.  China for its part has declared its opposition to sanctions against Iran.

debkafile's intelligence sources disclose that Tehran has set up alternative financial mechanisms with China and Russia for getting paid for its oil in currencies other than US dollars. Both Beijing and Moscow are keeping the workings of those mechanisms top secret. 


French Frog's picture

"(if we were a suspicious, we would guess that GS got loaded with hedgies selling vol - covered calls - and were looking to unload some of that exposure to others)."

No need to be suspicious, it's not a well-garded secret anymore that GS does the opposite of its published research lol

SelfGov's picture

The EU sanctions (That came out the same day as your news) seem to prohibit trade in gold and precious metals.

This doesn't sound suspicious at all.

SAT 800's picture

Perfect; talk back to the bully. What an idiot government we have.

Silver Bug's picture

Volume continues to drop on average. The well is running dry.



JPM Hater001's picture

So when you are doing backfliPs on the trampoline an that point where you are done moving vertically up and start heading back down. It's callled the apex.

It's also the moment of least movement right before you come down on the ground and really fuck yourself up.

Yeah, the apex...that's where we are.

Karl von Bahnhof's picture

Start to love the slloooowwwwwww motion

jelyfish's picture

I'm wondering if the French downgrade has sucked some $$ out the whole damn system. Not getting even par for their French paper.  Not a big deal except when you consider that everything is so levered up. Starts to have an exponential effect.

The Monkey's picture

"Go bulls!"

I'm always cautious with these words, but, it looks like it's time to sell short. Could be 50 points off on the S&P, but good time to start loading up.

economics1996's picture

Waiting for Uncle Ben to service the whore.

vast-dom's picture

and the whore is insatiable more more more she needs more the bottomless BPD pit and it's never her fault because it's always yours...BenBo pls print just this one last time, until the next time......

AC_Doctor's picture

I guess they need some more ALGO's HF trading to make it look more normal.  PPT is doing a fine job.  Let's see how they do when the Greek PSI rejection comes.

HarryM's picture

Today is Chinese New Years day

RiverRoad's picture

Happy New Year and Rots of Ruck everybody!

LouisDega's picture

Daddy, Whats a volume?

distopiandreamboy's picture

I wonder how long before we start hearing that volume doesn't matter, just like downgrades and rating agencies.

walküre's picture

So maybe they will one day actually agree that these markets don't matter and call it a day, shut down their stations and go find work in the real world?

Osmium's picture

According to Cheney, defecits don't matter, so why would volume?

Blank Reg's picture

I've never said this here before but I don't want to be left out, so here goes...

(Ahem,  mi mi mi mi)
Ok, I'm ready:

"Silver Bitchez"

The Monkey's picture

I'm a buyer at $3.00 / oz. Silver is a beautiful metal & has great industrial uses. It's also very plentiful relative to supply. Not that difficult to get a grade of industrial copper alloy to perform with similiar conductivity.

Waterfallsparkles's picture

HFT and Weekly Options keep volitility down.  Only time Stocks really trade are on Tue and Wed and then it is to the next option strike price for the week.  Plus, who ever pays the most in weekly option premium gets the Stock price they want at the end of the week.

RiverRoad's picture

Any idea as to how much of this low volume on the NYSE is due to institutional investors and others using dark pools and alternative markets?

The Monkey's picture

Lots of explanations, but the most obvious one: bear market fake. There is a serious lack of liquidity in the market @ the lowest real interest rates in US history.

Study the technical condition of the Japanese secular bear and countercylical bull markets.

Time to short.

kito's picture

sorry to comment on the same thing 2x, but felt it was important in light of this zh post on volume dropping:

market chartist joe granville calling for a loss of 4,000 in the dow this year, starting now.  he says its based on low volume. i guess as dreadful as 2011 volume was, its much worse now:


IndicaTive's picture

Does this (low vol, possible top) give the Fed a defensible reason to surprise everyone this week with a QE hint?

a4ln143c2001's picture

i dont think fed use low vol as an excuse to issue QE3. The most likely scenario is they will say economic growth still seem challenged and owuld warrant more stimulus. However, that's still a hard sell to the public/congress given the recent strong numbers.

QE3 when oil is at 100 and spx at 1310? Welcome to hyperfinflation and lack of growth for the next 10 years. 

Oil with QE3 will go to at least 110 or 120, how would that affect the whole world? 


IndicaTive's picture

Thanks. Makes sense. But making sense is what's scary these days I guess. I thought maybe with the Iran, Strait of Hormuz and sabre rattling the price of oil could be compartmentalized by TBTB. Learning is fun. Thanks ZH.

RiverRoad's picture

Thanks kito.  If we can all agree that economic fundamentals are out the window, so probably is Joe Granville.  Something tells me that the smartest guys in the room are avoiding the NYSE like the plague. 

Randall Cabot's picture



"Volume precedes prices," Granville, 88, a technical analyst who has been publishing the Granville Market Letter fromKansas City, Missouri for about 50 years, said in an interview on "Street Smart" on Bloomberg Television. "You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected."

Granville told newsletter readers to "Sell Everything" on Jan. 6, 1981. The Dow fell 2.4 percent the next day. He correctly forecast the bear market of 1977-78 and the burst of the Internet bubble that began in 2000. In March 2008, Granville said the Dow would end the year near 9,000, more than 27 percent below its level of 12,392.66 at the time. The gauge finished the year at 8,776.39.

luna_man's picture



I believe, that sixth sense, (smell) is at play here...


ekm's picture

Nothing matters, until...................................................................................................................................................................................IT ALL DOES.

We will see, we will see!

Temporalist's picture

Stop with the hyperbole!  Volume didn't crash it just has drifted lower and lower and lower for a really really really long time and now the bottom is in just like in housing.

Traianus Augustus's picture

Looking at the big picture.  This is what happens when all out corruption kills the market.


Ghost town

A town permanently abandoned by its inhabitants, as because of a business decline or because a nearby mine has been worked out.

ekm's picture

Volume is very low = low transaction fees

There is only one way left to make money in this market: Pump and Dump. The problem is, it requires suckers. Where are the suckers?

resurger's picture

Yesterday i went and bought 1 Kilo of silver and 42grms of Gold

Am not a gold freak, but i asked the guy how was your transaction in the month of Jan 2012, he told me that large amount of people have bought Kilos of Gold and Silver, and guess what there are no more ounces of gold in the market? they were all sold out.

Today am going again and am buying 2 more Kilos of Silver

Silver Bytches

I am a Man I am Forty's picture

David Stockman was on Dylan Ratigan this afternoon, GREAT interview, can't find it on the web, but post it if you can TD!

EyeQ's picture

volume of a pyramid = area of the base * height * 1/3,

so if the base is constant, then the height needs to go down if volume is down, so mathematically, prices should head lower (assuming the market is a square based pyramid)

The Monkey's picture

It is a pyramid of some sort (:

billybobtx's picture

Celebrations of the Lunar New Year holiday will affect markets in China, Hong Kong, Singapore and South Korea this week.

The Monkey's picture

Time to go long 30 year zero coupons if you can get a decent bid / ask spread.

-1Delta's picture

ya no volume and retarded skews/ IV term structures do not mean a thing LOL