The last 90 minutes of the day dragged ES (the S&P 500 e-mini futures contract) back up to the safety of its VWAP on what seems to be some comments by Jamie Dimon on the Fed looking for much larger job creation (prompting QE3 moves) or another housing bottom-call? After what had been an ugly day in which stocks sold off (aggressively after the European close) back to the post-Bernanke reality that is the less sanguine credit markets, the USD weakened, commodities and stocks popped (led by financials), and Treasuries sold off (belly underperforming). It seems that no matter who comes on TV nowadays and says anything, the algos market will rally. By the close, Financials were the only sector in the green (as GS and JPM surged but not so much BAC or MS) but Materials, Energy, and Industrials were the worst. VIX managed to get above 17 before reversing back to unchanged and the term-structure steepened back a little. Gold (which dropped the most in 2 weeks today after Goldman's long call [7]) remains the only metals/oil commodity higher on the week - though only marginally - as plunges in Oil and Silver bounced quite positively into the close. Stocks underperformed credit on the day in general but the low volume limp up into the close saw them even out and we note that as ES hit its VWAP - heavier negative delta volume came through somewhat suggesting this was an effort to ease institutional exit - as both NYSE and ES volume was above average. 30Y Treasuries are back to higher in yield for the week but this afternoon's selloff lifted yields 4-5bps off their earlier lows. Broad risk assets led the equity market down but quite coincidentally, the S&P ended the day almost perfectly in CONTEXT with risk assets and credit/vol (after a significant dislocation the last few days).
Once again equity ebullience overshoots. From Friday's comments to Monday's exuberance, equities shot away from a sense of perspective only to drop back to credit's less sanguine view of the world today (and the end of day spurt in stocks was not accompanied by our credit brethren once again)...
[8]
As if by magic, ES manages to pull up to the safety of institutional-selling-friendly VWAP (the light blue line) - which just happened to coincide with the European-close pre-dump level. The lower pane also shows the surge in volume as we sold off into lunch after the European close...
[9]
Commodities produced the most angst perhaps today as Oil lost $105 on inventories for a while but the modest USD weakness into the close dragged them higher off their 'plungey' lows...
[10]
While Gold remains just in the money for the week (after dropping its most in 2 weeks today coincidentally following our comments on the Long Gold call by Goldman [7]), 30Y Treasuries are back in the red (as the rest of the curve remains lower in yield - despite flattening today from the belly...
[11]
It seems that all of a sudden we re-awoke in a world where macro data actually matters this morning and Europe's ugliness after overnight weakness seemed to confirm that.However, that reality was soon glossed over this after once again...
[12]
VIX (along with credit) was the first sign that the rally was faltering yesterday but as is clear in the chart above, it appeared VIX overshot a little with the selloff - people scrambled for protection as the S&P started to fall - which implicitly slowed the sell-off and then the rapid reversion in VIX as the rally began ended with VIX and stocks back more in line with one another (though as is clear in the lower left below - from a credit/vol/stock perspective, vol remains cheap here at the close).
[13]
Then this afternoon's surge seems more like 'Its On again'. The convergence of ES with VWAP, the round-trip in VIX (from cheap to 'fair' and back to cheap - lower left), and the convergence of SPY with our capital structure model (upper left) and ES in the CONTEXT of global risk assets (upper right) suggests this was more of a brief pause in the downdraft (as correlations caught up to equity's slight overshoot) as certainly there was no volume in the upswing. But perhaps this is the pause that refreshes once again as funds prepare to ride the biggest winners to their biggest gains once again in this momentum race to infinity (or 3700 ES by 2020 anyway!). Whether this was pre-buying for the next China rescue or bigger-bailout, or potentially terrible data point that 'enables' QE3, who knows?
Charts: Bloomberg and Capital Context [14]