US equity indices are in their own little world of glee today. Treasuries, credit, FX markets, swaps, commodities are not playing along. So what is going on? These two charts may help to explain...
It appears earlier in the week - when things got a little bit turbo - everyone and his pet rabbit Dave piled into macro overlays - i.e bought index protection with both hands and feet. This makes sense - market was moving fast, grab the most-liquid hedge you can find and hold on...
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but today, that 'protection' is being unwound - and in doing so it is providing some impetus to the indices to move higher (lots of mechanics to why from market-maker algos managing deltas to momentum algos picking up the VIX signal)...
But underlying all this index progression - individual stocks are being sold in size as the following indicator market breadth indicates...
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So, it appears, between IBM and GE, managers are nervous and instead of hedging are now unwinding hedges and cutting real exposure into this strength.
Certainly doesn't seem sustainable..
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