After 22 crosses yesterday, and 12 more today, the Dow managed to close above 13000. Transports were lower but less so on Oil's modest retracement (though the Brent-WTI spread remained around $15). While stocks closed modestly higher, volatility and correlation markets remained considerably higher than would be expected and along with quite considerable relative weakness in HYG (the high yield bond ETF) into the close as well as a clear up-in-quality rotation was evident as investment grade credit outperformed notably (not exactly a high-beta risk-on shift). Apple's meteoric rise helped drag Tech to first place overall today and also YTD followed closely (YTD) by financials both up around 14%. The last week or so of slow bleed higher in stocks has notably not been led by a short-squeeze in general - based on our index of most shorted names - but as is becoming more and more clear, divergences (and canaries) are appearing all over the place but we suspect can be traced back to Apple in many cases for its over-weighting impact. Treasuries slid lower (higher in yield) after Europe's close but remain better on the week and modestly flatter across the curve. Aside from a hiccup around the macro data this morning, EUR pushed higher all day against the USD shifting into the green by the US close as JPY stabilized. The USD weakness helped Copper and Gold leak higher but Silver was the massive winner, now up an impressive 4.3% since Friday and 30% YTD as WTI lost $107 and is now down over 3% on the week. The IG rotation coupled with vol decompression makes some (nervous) sense heading into the LTRO results but it seems the new safe-haven trade is Apple (whose option prices are now the most complacent since early 2009).
12 more crossovers today and finally we get the much-heralded Dow 13000 close...
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with stocks overall led by Apple (tech) and Financials both of which overall remain the best performers YTD...
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...but while stocks limped along in a narrow range on 'average' volume, investment grade credit rallied handsomely this afternoon and HYG (the high yield bond ETF) sold off quite significantly (relative to the risk-on sentiment in stocks)...
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...and while VIX managed a small down day, overall the vol trend is negative or less exuberant than stocks would infer - especially if we look out across the term structure and wings of the vol surface (and implied correlation)...
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It would appear that the momentum-driven excitement has slowed this last week or so and much of that seems to be due to the short-squeeze fanaticism being largely wrung out. Our most-shorted index (in which we took profits) has pulled back to 'fair' with the overall market (orange oval) since inception suggesting much less squeeze pressure (of course that is outside of AAPL).
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...and while Treasuries leaked lower (higher in yield) this afternoon and the USD also leaked lower driven mainly by EUR strength, the dispersion in commodities was again the big story with Oil dropping considerably on IAEA chatter and SPR rumors and Silver exploding higher on, well who knows other than high beta catch-up ahead of the LTRO perhaps.
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Charts: Bloomberg
Bonus chart: Apple's option prices imply the most complacency with regard to downside concerns since May 2009. This chart tracks short-term and long-term options prices implied distribution skew - i.e. how different from a normal distribution are the prices of Apple's options saying its expected returns are going to be... the answer is - the most skewed to the upside (with little concern for downside) in almost 3 years. As an aside, the kurtosis (or fat-tailed expectations for long- and short-term are in line - often a sign of a trend stalling).
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