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Volumeless Equity Recovery Ignores Broad Risk Asset Derisking

Tyler Durden's picture




 

While the EURUSD's recovery post Europe's close seemed to modestly support stocks, the USD is still up from Friday's close as ES (the e-mini S&P 500 futures contract) closes marginally in the green against the direction of FX carry, Treasuries, commodities broadly, and credit. The volumeless (and gravitationally unchallenged) push from post-Europe dip lows this afternoon were generally ignored by VIX, investment grade, and high-yield credit markets, after the morning was a relatively significant amount of selling pressure in HYG (the increasingly significant high-yield bond ETF) to pre-NFP levels only be bough all the way back and some more into the close. Average trade size and deltas had a decidedly negative feel on every algo-driven push higher from VWAP to unchanged but the divergence between Brent and WTI dragged the Energy sector over 1% higher (as every other sector lost ground with Financials (ex TBTFs) and Materials underperforming. Treasuries rallied well from the Europe close and closed just off low yields of the day as commodities all ended lower from Friday's close with Copper and WTI underperforming and Silver just edging Gold as they hovered around USD's beta for the day. VIX dropped modestly after the cash close but ended higher on the day with a notably low volatility of vol from mid-morning onwards (and the late-day vol compression seemed index-driven as implied correlation also fell commensurately). A quiet day in European sovereign and financials along with the disastrously low volume day in ES and on the NYSE really don't feel like signs of broad participation as Greek events slowly but surely unfold along the path of known resistance.

 

The red oval shows the significant drop in HYG and the orange oval shows the underperformance of the major credit indices this afternoon. This latter is notable as we have tended to see them move in lockstep with stocks on low volumes as dealers simply rerack (shift their bid-offer runs) to meet equity/vol implied higher frequency moves. This suggests some net protection buying pressure away from the norm.

Financials and Materials underperformed as Energy names took the lead (on Brent and obviously not WTI as tensions mount). While XLF did underperform, we note the Too-Big-To-Fails remained bid, especially BofA which just kept gliding upwards - all up around 1% today (we suspect maintaining some bid under stocks broadly as pivot securities or just the most hated outpeerforming once again).

 

To get a sense of the disconnect from other risk assets, the chart above shows the market's CONTEXT from last Thursday (not recalibrated). The NFP jump left risk assets over-compensating for their underperformance going in but puling back into the US close on Friday. As ES opened on Sunday (with EUR down), so it slipped lower until coming back into convergence with the CONTEXT of the prior week. As Treasuries rallied, commodities muddled along, and FX carry rolled modestly over along with credit, so CONTEXT became notably uncorrelated into the afternoon today (and warrants normal recalibration) but just gives an impression of an equity market adrift on iots own bliss.

Around the close, we note that Treasuries sold off a little more though held gains for the day.

Charts: Bloomberg and Capital Context

 

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Mon, 02/06/2012 - 17:55 | 2132033 Stack Trace
Stack Trace's picture

I can't wait until Volume reaches 1990 levels. Then maybe the DOW will hit 100,000 and we will all be Rich! </sarc off>

Mon, 02/06/2012 - 18:32 | 2132140 doomz78
doomz78's picture

What is going on with the vix???  Is this what a "supported" market looks like?  No volatility as greece postures on the brink of exiting the euro????

The vix is at 17..   All time low of 11.. in the early nineties.  All time high of 90 on lehman brothers.  This is my strategy.  Im buying now a small position in the vix.  At 15 (if we get there) I double down.  At 11..   Im ALL IN!!!!!!!!!!!!!!!!!!!!!!!   With the powers that be, its hard to bet on volatility when the market rallies during euro zone bankruptcy and mass exodus talks.  What can make this market drop in value.  Obamas presidential election?????     DOW jones is going to 20000 or 5000.  Just not sure wich way yet.  but the upside seems to be what they want. 

 

 Disclaimer;  Im an idiot and I don't give financial advice.  If you listen to my pleasure derived information YOU will lose all your money.  I am not a professional of any kind.  Once again Im an idoit savant, without the savant. 

Mon, 02/06/2012 - 20:17 | 2132415 chump666
chump666's picture

Lethal. 

Bring up your VIX chart, run it back to, yes that year 1987.  Now look at our VIX levels compared to 1987 (prior to the crash) it flat-lined, then spiked - worst than the 'Lehman' event.  Similar and frightening.

The warning signs are building on something big, some small coincidences usually points towards an 'event'.  The market (stocks) currently has priced out risk, which is madness.  It all points towards a sharp and brutal selloff coming.

Tue, 02/07/2012 - 00:18 | 2132916 HedgeAccordingly
HedgeAccordingly's picture

ding dang you might be onto something - NYSE volume https://bitly.com/yBZZF9 

Mon, 02/06/2012 - 17:56 | 2132039 GoldenGal
Mon, 02/06/2012 - 18:01 | 2132053 LouisDega
LouisDega's picture

I see 40 downward red arrows in your immediate future

Mon, 02/06/2012 - 18:03 | 2132061 Stack Trace
Stack Trace's picture

-50. K-thx. Nothing to see here. Move along.

Mon, 02/06/2012 - 18:50 | 2132201 Dr. Engali
Dr. Engali's picture

Seriously ? A yahoo link? You're kidding right? You do know that's a policy propaganda service?

Mon, 02/06/2012 - 19:33 | 2132305 Stax Edwards
Stax Edwards's picture

How is that internship at the FR working out?  Thanks for stopping by!

Mon, 02/06/2012 - 18:01 | 2132058 SDRII
SDRII's picture

The only Q on BAC is when the offering comes? The rally got kicked off with the options buy and it has been a steady glide up. Stress test Mar 15 with FOMC the day prior

Mon, 02/06/2012 - 18:21 | 2132070 Zero Govt
Zero Govt's picture

Anyone know what risk looks like?

The Fed are perverting every natural risk curve in every (one time long ago) free market

10-30 Year Treasurys are showing no rate risk when they're about as safe as a snowball in Hell to plunk your money in

the stock markets got back to their euphoric 2008 peak like there was never a property and banking toxic mushroom cloud ever happened

interest rates to the riskiest banks on the planet are at 0.50%

this is the Zombie Goldilocks economy

Mon, 02/06/2012 - 18:10 | 2132086 non_anon
non_anon's picture

clean out that coratid artery

Mon, 02/06/2012 - 18:11 | 2132088 HD
HD's picture

The question is - can it hold? What has to happen for TPTB to lose it's grip on the market?

Mon, 02/06/2012 - 18:21 | 2132116 Zero Govt
Zero Govt's picture

a powercut on the HFT computers

Mon, 02/06/2012 - 18:34 | 2132152 The trend is yo...
The trend is your friend's picture

Stocks Like aapl just keep pushing the markets higher each day.  This one sided trade might come come and bite some late comers very badly

Mon, 02/06/2012 - 18:37 | 2132158 GoldenGal
GoldenGal's picture

Where is TRAV777 when you need him?

 

Mon, 02/06/2012 - 18:39 | 2132164 GoldenGal
GoldenGal's picture

DIAMONDS are the new gold!!!!!!!!!!!!!!

Mon, 02/06/2012 - 19:22 | 2132278 acompletedouche
acompletedouche's picture

Derisking my ass,market pretty much vertical for 2 freakin months no matter what the f^ck the news is.SPX 1400 in a week is a lock unless massive volume to the downside starts to pile in.

100% full backstop or every single asset class on the planet,f^cking sickening but nonstop...

Mon, 02/06/2012 - 19:54 | 2132367 JW n FL
JW n FL's picture

 

 

more magic that We the People will pay for if it loses money.. and if it makes money Wall Street will keep the profits calling it Gods Work!

Tue, 02/07/2012 - 09:45 | 2133523 leon66
leon66's picture

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