For the first time since last July, right before the market's grand plan collapse, the Dow has fallen for 6 days-in-a-row. We could of course have just copy/pasted yesterday's end-of-day as today was a case of deja deja vu all over again as we sold off hard overnight (basically top-ticking right before the US day-session close), made new overnight lows, then managed a miraculous rally into and across the European close only to stall once again as the dip-buying algos enabled bigger blocks to dump into momentum retail players. The European close hour saw your standard 4-sigma swing (low to high) in ES (S&P 500 e-mini futures) but gave half of it back it its typical VWAP reversion as for three days in a row we have dipped and tested the S&P's 50DMA and rallied on lower volume (though ended the day with the 3rd highest volume of the year). The USD rallied further with the EUR ending around 1.2950 (though off its lows of the day) but once again commodities (which sold off pretty hard overnight) managed to crawl their way back higher (closing rather interestingly at the same levels at which they opened the European day-session). VIX ended above 20% (its highest close in a month) and its flattest term structure in five months. Treasuries ended the day marginally changed (-1bps 10Y, +1bps 3Y) but ended well off their low yields of the day. High yield credit was a major underperformer - ending below yesterday's lows (as was IG credit) - bearishly diverging from equities again.
Six down days in a row for the Dow - is history set to echo/repeat?
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S&P 500 e-mini futures (ES) sold off to new lows, rallied (green arrow) over 4 sigma across VWAP (dark red line) back to this week's high resistance and then faded (once again) to drop back perfectly to VWAP - red arrow - (AGAIN!)...
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Longer-term patterns are starting to look very similar - today was the 3rd highest ES volume of the year and volume is rising as this sell-off picks up pace - just like it did last summer...
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It's Deja Vu All Over Again... (this is ES relative to VWAP over the last few days)...
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and in commodity-land - deja vu also and the dip was bought (green U's) - what is interesting today is the basically unch move from midnight (Europe's open) to the US close (orange arrows). Once again WTI was all the rage and how great it was for consumers - we note that oil is now only -2% on the week - not exactly the kind of wallet-helping move so many think it is...
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Credit markets were not happy - taking their lead from Europe - HY and IG underperformed and ended below yesterday's lows - very different from equities...
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Just for interest's sake we took a look at realized vols for equity and bond total returns over the past few years. Obviously bonds are 'less' volatile, as is the volatility of that volatility - which perhaps fits with Einhorn's recent insight that the Bernanke Put is not under stocks but under Treasuries and merely manifests itself more obviously in stocks. What we noted is the decoupling and re-coupling of equity and treasury over times and the current re-convergence as equity vol rises (which reminds us that VIX managed to get above 21.5% earlier today around its 100DMA closing around 20% and shifting its term-structure in a bear-flattener to the flattest in five months)...
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We spent a lot of time recently discussing European banks (notice how generally well-behaved European equity and credit markets have been - lower pane) but US banks have been hit relatively hard (in the credit markets) and yet US financial equities remain stubbornly unable to give up that last bit of Bove-hope (upper pane)...
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and finally - trying to make sense of the movements across all asset classes was tough (with some leaking higher in yield in Treasuries this afternoon - even as stocks limped back to VWAP) but overall - risk-assets were not as exuberant post-Europe again as stocks and by the close, stocks had reverted back to risk-asset (CONTEXT [16]) reality...
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Once again - as a reminder - Europe will open tonight - that is all as it reminds us of the following clip...
Charts: Bloomberg and Capital Context [16]
Bonus Chart: We missed the European EOD earlier so here are European sovereign spreads this week...(Spain and Portugal 10Y spread to bunds +41 and 49bps on the week with Spain >6% yields at its highest in 5 months and Italy +23bps in the last 3 days)...
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