Cash and Futures S&P 500 managed to close back above the 200DMA after a dismally low-volume melt-up supported by a reversion to fair-value in HYG but diverging from most other asset classes. Having pulled away from Treasuries, Gold, and the USD, stocks (led by financials) roamed higher on lower and lower comparable volumes to manage their best gain in a week with a generally low average trade size overall. Credit markets were quiet and reluctant to follow stocks but were reracked up (though IG underperformed HY's exuberance). However, the pop in JNK and HYG dragged them from the quite notably cheap levels they were at up to their intrinsic value and they anchored there (so not really a confirming strong rally). HY and HYG are in line also. Oil and Copper dropped early and then leaked back higher for the rest of the day as Silver and Gold end close to unch for the week - with the USD also close to unch as EURUSD round-tripped its gains from yesterday. Treasuries lagged the move in stocks but leaked higher in yield also in the afternoon - except notably 5Y which outperformed (reminding us of the 7Y outperformance aberration yesterday) as we suspect end-of-Twist is being priced in. After the day-session close, ES limped back towards VWAP on heavier volume and average trade size but didn't make it as we note VIX fell back below 25% (down 1.25 vols today) ending the day a little rich still to equity/credit fair-value. Lots of rumor-driven knee-jerks today but once the momentum had set in for stocks, we limped along to crack that 200DMA giving hope before Draghi's reality check tomorrow.
HYG (more than VXX and TLT) were very supportive of SPY today (as is clear in the upper right model) - but reverted back rapidly (to VWAP on heavy volume) from their now rich-to-intrinsics and rich-to-SPY level right at the close. Broad risk assets were not as exuberantly hopeful as stocks as the data hit this morning (upper right chart) but were dragged along as momentum lifted all boats in the afternoon. Correlations came and went (lower right chart) - most notably came back to relatively high levels by the close which portends a much more systemic move in markets (one way or the other). VIX (lower left) remains a little rich to equity/credit model's reality but round-tripped from some early weakness in risk assets by the close...
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Comparatively - gold, treasuries, and the USD did little relative to the liftathon in stocks...
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HYG certainly wanted to get back up to its fair-value today, extended the momentum beyond it in the late day, but snapped back to reality into the close. IG underperformed as maybe some pressure from cheap overlays remained but volumes were light so we suspect this was more reracks in HY than very active trading...
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ES managed to regain the 200DMA but we note that (just as with JPM and MS) the closing VWAP level from Friday was very important...Look at where ES stalled today...
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and for JPM, that closing VWAP seemed important too (same with MS, C, GS, XLF, and SPY)
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and GS (just to show the seeming importance of the magical algos that levitate stocks wherever you wish them to go)...
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Charts: Bloomberg and Capital Context [11]