NYSE volume was 20% above yesterday's and S&P 500 e-mini futures (ES) volume surged to its 2nd highest of the year as the last 30 minutes saw heavy volume and large average trade size very active as it pushed up towards VWAP and oscillated around its 50DMA. ES closed below its 50DMA for the first time since Monday but equities notably underperformed Treasuries (playing catch-up to bond's recent rally). Equities hit their lows at around 1430ET as ES coincided with Monday's closing VWAP (and Apple also tested and stayed around Monday's closing VWAP) and with a spike down and recovery in WTI prices (margin calls?). The major financials saw their best levels pre-open and slid lower all day with very little bounce at the close. While there was plenty of volatility in FX and commodity markets, close-to-close changes were relatively benign in the USD (DXY) and Oil, Copper, and Gold (while Silver modestly outperformed). All the action in FX was between US open and Europe's close but the afternoon saw AUD drifting weaker and CAD lose most of its spike gains from yesterday as JPY also slipped relative to the USD reducing some of the negative carry impact. Just as we had noted, and reiterated this morning and afternoon, equities performed the same hope-driven rally relative to broad risk assets as last week, and before the late day VWAP-seeking surge, almost completed their shift to fair-value. VIX also pulled higher to its credit-equity-implied fair-value before falling back as we rallied into the close. Overall average trade size today in ES, given its very heavy volume, was among the lowest of the year which suggests a lot of algos trying to wriggle their way back to VWAP to release some orders and with equity reverting to Treasury's, credit's, and broad-risk-asset's views of the less-than-stellar world, we suspect there is more selling to come here - albeit with OPEX complications.
ES remains below its six-month up trendline and closed below its 50DMA on very heavy volume today...
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And from the European close onwards, it was all stocks as Treasuries, Gold, and the USD trod water in narrow ranges and in sync with one another. The flip-flopping early on between USD sync and TSYs sync was fascinating but to be clear, as we noted seconds after the auction, the market saw the actions in Spain for what they were - not good - and macro data in the US hardly helped - despite rallies post the Philly Fed and Home-Sales miss (red dotted vertical line)...
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The USD had a little jiggle between US open and Europe close but is generally tracking sideways as the rest of the majors rotate around it. CAD (pink) has reverted its spike gains and JPY and AUD continue to trend lower (up is USD strength)...
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Credit and equity markets generally tracked together most of the day with equities a modest underperformer close to close. Notice that IG-HY (orange oval) is decompressing as up-i-quality rotation is occurring. HYG remains rich to NAV and HY - unable to pull away again from its converged equity index...
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And as we noted earlier this afternoon, equities were converging lower to the dismal place that Treasury yields are settling but on a broad-risk-asset basis, ES also reverted (just as it did last week) on our medium-term CONTEXT. Equities remain in hope-and-see mode but just keep getting disappointed...
And VIX drifted higher all day as equities leaked lower until it coincided with its equity/credit fair-value and then we bounced in equities...
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Correlation picked up into the close but the inability for a market leader like Apple to regain Monday's closing VWAP and the broad market to regain today's VWAP suggests selling pressure was heavier than a first glance at close to close changes might reveal. Yet another day of high range swings in stocks as the last two weeks are increasingly resembling last Summer's chaos.
Charts: Bloomberg and Capital Context
Bonus Chart: A Day In The Life OF S&P 500 e-mini futures and VWAP...
(click for considerably larger chart)
The bands either side of the dark red VWAP line are standard deviations. This gives some scale to the sell-off in the mid-afternoon - over a 3 sigma drop relative to the day's volume-weighted average price volatility is very large.
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