Something different today. A dip was bought and kept a little momentum - aided and abetted by some late-afternoon desperation EUR buying correlation-help which dragged the Dow back over the magical 12,500 level. Stocks and high-yield credit bounced nicely today - with the latter dragging the former higher from what we could tell (on the back of reversion to fair-value in the ETF and credit market) - as the rest of risk-assets were generally stable. AAPL rotation (making yet another one of its 9-plus % drops-and-pops) helped drag NASDAQ up while FB dragged the entire social media segment down. Financials, while up as a sector, were ugly in the majors with JPM joining Citi and MS in the red YTD now and BAC back to 4 month lows. Gold was unch and silver down as Oil and Copper jumped (with the former testing $93 at the close). Treasuries were practically unchanged from Friday's close but the long-end rallied the most from its opening levels last night and the 2s10s30s curve was a significant risk-on driver. Stocks were on their own though when we look at Treasuries, the USD, and gold as it appears the credit compression arbs were enough to pull stocks up and AUD and EUR strength into the close was interestingly aggressive - short-squeeze or does someone know something? Heavy and large size volume into the close suggests it was another ramp to provide exits - and credit indices needed to shed some 'cheapness' - though we remember that Europe is due to open in 10 hours. VIX tumbled over 3 vols but remains above 22% with the term-structure fo vol still steep.
Stocks (blue) were in a world of their own relative to Gold, the USD, and Treasuries today...
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and stocks (green below) appeared to get a lift from the drastic cheapness (lower pane) of high yield funds (light red) relative to their intrinsic levels (dark red)...reassuring since the knock-on effect of this HYG/HY cheapness could have dragged bonds into the quagmire and for now seems to have stalled
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and the same in HY/IG credit spreads where HY compressed its skew to intrinsics and rallied up to meet ES by the close...
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but as is even more highlighted in the two charts below: left => SPY vs HYG/VXX/TLT where HYG's pop-drop-pop is very evident as a driver of the model's lift to stocks); and right => S&P 500 e-mini futures traded away from their risk-asset-based reality (CONTEXT [11]) from around the open of the US day-session. Notably US equities did not get any 'richer' after the European close relative to CONTEXT which suggests whatever exuberance popped them into the European close (EUR strength / TSY-selling / repatriation?) had no legs and momentum had taken over then.
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Facebook was just ugly again but all that fast money sloshed out of social media stocks and into the old-faithful. AAPL saved the day with another 'odd' surge after having dropped over 9% again in a few days - sustainable?
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and as an FYI - AAPL closed almost perfectly at its closing VWAP from 5/14, which just happened to be a low-average-trade-size trade day - suggesting some retail selling at that level. The stalling at this level - just above the magic $555 level - does suggest this was an exit-providing move as opposed to an entry-encouraging move but then again - hedge funds can't help see a day's momentum as indicative of the way forward...(the various colors show the closing VWAPs drom each day - the red curve is the VWAP)
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Financials - if one looks at the ETF - did well with a 1% rally but the big boys were not pretty as JPM slumped further - dropping into the red YTD - and BAC is rapidly collapsing to its peers (though we note that XLF is now once again rich to its credit-market view of the world - and remember how that has worked out in the past)...
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The lack of movement in gold and Treasuries combined with the 'technical' shifts in the credit indices which in our view juiced stocks just enough (along with some exuberant FX moves today) does not suggest all-is-clear here for a big leg up (and short-0interest in ES is not high either).
Charts: Bloomberg and Capital Context [11]
and for good measure, here is Facebook:
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and the distribution of trades for FB opver the past two trading days - with the VWAP now below $39! showing the various defense lines of the syndicate and how they have failed...
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