Whether it was the deterioration in Consumer Credit, downgrade rumors for US financials, Greek bank restructuring/run chatter, or a final realization that near-term QE is off at these levels of equity prices (as signaled by Bernanke and Gold this morning), the equity short-squeeze stumbled hard in the last hour of the day to end unch. Utilities managed to outperform handily as all the high beta sectors dumped into the close as Tech and Financials closed red for the day. Treasury yields and the USD were signalling considerably more equity weakness than we got though the dive caught stocks up but Gold remained the biggest loser of the day (-2% on the week against the 0.7% loss in the USD). Silver remains positive for the week - though matched gold's weakness on the day as Copper and Oil whipsawed up and down on rumor and then lack of follow-through. Equities pulled back closer to the underperforming investment grade (and less so high yield) credit market at the close. Treasury yields ended marginally lower (with the long-bond underperforming) and 7s and 10s -2bps)leaving 5Y flat still up 9bps on the week (and outperforming). Risk markets in general slid as Bernanke's speech was delivered and the Q&A proceeded but stocks went almost totally dead with financials and the S&P 500 e-mini clinging to VWAP as volumes died - until that last hour plunge. MS and BofA took the brunt of the selling pressure (ending down 3-4%) - though they are still well of the lows from a few days ago. VIX cracked back above 22% as we dropped in the end but closed down 0.5vols at 21.7% but implied correlation rose back over the somewhat critical 70 threshold and equities remain notably rich to broad risk assets in general still.
Gold stood out as the big mover (beta-adjusted) today - but stocks pulled back down to a more realistic level based on TSYs and and the USD by the close...
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Equity and HY credit remain in sync but pressure on IG credit is still there - unwillingness to lift systemic overlays or putting on cheap macro hedges into the short-squeeze?
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HYG and VXX tended to overshoot down and up today as the early weakness and mid-afternoon pop came but by the close, SPY was back in sync (rather miraculously) with VXX, HYG, and TLT. Equities remain rich to broads risk assets after leading them higher for the last few days - despite some TSY/FX driven give-ups by the look of it early in the day today for CONTEXT. VIX touched fair-value earlier, sold back off and then by the close was back up near its credit/equity vol fair-value but correlation remains on the low side but picked up in the afternoon - which given the downswing is perhaps a little worrisome...
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It appeared today's action was very much about juicing stocks up for some better exit levels - as is clear here we dumped right out of the gate in the QE-sensitive sectors, stabilized after Ben's speech and algos lifted us to VWAP and then dumped into the close once again...
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Not pretty but then an unch close is hardly epic (yet)... medium-term we are at some upside resistance and it appears (yellow/blue bars courtesy @eminiwatch) that it was small players pushing us into the highs today and pros covering...
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But perhaps what is most scary about today's action was the huge jump up in average trade size which smells a lot like a short-squeeze up being used by the big boys to get better exits also (as opposed to jumping aboard to start a trend)...
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Charts: Bloomberg and Capital Context
Bonus Chart: Facebook ended the day -2% MORE! Oscillating between VWAPs - this has become the new 'Pong' it seems...
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Bonus Bonus Chart: The term structure of Vol has got extremely steep once again (5 month highs) - the last time we were this steep, thanks to short-term vol compression exuberance, equities sold off quite sharply...
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