Canada's TSX is now up over 1% from its pre-vertical ramp yesterday afternoon as it is now extremely clear, to all those who take the time to consider why, that as central bank liquidity provision must flow somewhere, so the algos latch on and follow the momentum. We have just had what will likely be the most costly US disaster in history, earnings are anything but robust, BoJ's QE9 failed instantly last night, Greek Government Bonds are fading (now off almost 10% from recent highs) as deals look set to be voted down, and European sovereign bonds are leaking wider; and so - with US equities shut, that PBOC/BoJ liquidity must flow somewhere and the closest proxy is our Canadian brethren. TSX current price implies S&P futures around 1425 and S&P cash at around 1430 - back to Bernanke's starting point for QEtc. We suspect this is just auctioning up to previous resistance but USD weakness is helping modestly (even as commodities slide lower) but of course it is just as likely to be all about slamming the European close.
TSX (red) versus S&P 500 cash (light green) versus S&P 500 futures ES (dark green)
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and where that ES level would be...
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Why is 1400 or Bernanke's Bottom so important? Aside from the pschological import, S&P options have a maximum pain point (see here [4]) at $144 (the point at which losses for ALL option buyers are maximized) or more importantly $140 (which is the strike that creates the most loss for option buyers since the last expiration)...Some serious pinning here - even though there are still over 2 weeks until Nov expiration. For the weeklies that are due on 11/2, MaxPain is $142 - even more crucial...
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With the inability to manage these positions - is it any wonder that the algos are using Canada to nibble the market back up...
Chart: Bloomberg