NASDAQ

While partying like its 1999 is still a way away, the NASDAQ has managed to get back to December 2000 levels as it has only dropped by more than 1% once in the last six weeks #yay Retirement-On!

"Australian mining magnate Gina Rinehart has criticised her country’s economic performance and said Africans willing to work for $2 a day should be an inspiration. Ms Rinehart is said to make nearly A$600 (£393) a second." The richest woman in the world is making an increasing number of public appearances, and speaking of increasingly controversial topics. I wonder why. It couldn’t be that she is becoming increasingly aggressive and controversial because her core business is in trouble, could it? Marc Faber suggests so: "There have been four mega bubbles in the past 40 years. In the 1970s it was gold; in the 1980s it was the Nikkei, and in the 1990s it was the Nasdaq. Bigger than all of them, though, has been the iron ore bubble, a tenfold increase in prices in less than a decade."

A very noisy gappy day with much larger volume than in recent days (which all dried up in the afternoon session until the close - for the heaviest volume day in a month) in US equities. European comments lifted us early in a correlated-risk-on manner until Bernanke's speech which hit markets like a meteor - stops were run up and down - but by the close equities and the USD ended fractionally lower from pre-Ben (notably up on the day to save the month for the Dow), Gold considerably up from pre-Ben, Treasury yields down notably from pre-Ben. Near six-month highs in Gold and five-month highs in Silver were the real movers today - with their largest gains in two months. VIX ended marginally lower at 17.5% (-0.3vols); credit was very thin today and tracked stocks in general (though less volatile); USD ended the week -0.5% which matches Oil's +0.5% on the week as Copper underperformed. Silver has overtaken Stocks as the Year-to-Date winner once again...

The market is indeed a discounting mechanism it appears. In a mere 20 milliseconds, the world's 'traders' had managed to read Bernanke's 4549-word script, interpret it (as bearish in this case - which apparently is wrong now?) and start to sell down the major equity indices. As Nanex points out, not only was the reaction lightning fast (actually faster than lightning) but it occurred in their newly created 'fantaseconds' as trades were timestamped 'before' the bids and offers were even seen in the data-feed. How long until the machines can interpret Bernanke's 'pre-QErimes' and really front-run reality?

This evening, as many boomers on the verge of stepping into the golden hue of retirement sit down for dinner and watch the news, they will be perplexed at their next move. The Dow closed at 13000.71 (just in the realm of the Fed's 3rd mandate to enable retirement) but stunningly the S&P 500 closed at 1399.48 (below the dreaded 1400 level that gives everyone a green-light to retire). Volume was average for the recent lows and despite the S&P 500 e-mini's 'tickle-algo' efforts to get back up to the day-session opening levels (cutting half the day's losses), the last few minutes of the day saw a plunged back down to the lows. AAPL fell over 1.5% - its worst day in five weeks - enabling NASDAQ to catch-down to the S&P in performance terms since the 8/21 highs (down ~1.2%) while the Dow Transports is down 3.8% in the same period. Healthcare and Staples outperformed (though all sectors were red today) as Energy and Tech were the biggest losers. A strong 7Y auction sent TSYs bid to the week's low yields this afternoon but the early comments from Europe were the driver of USD strength (EUR weakness) and Treasury strength - which implicitly dragged commodities (though mixed) and stocks lower. VIX traded over 18% just before the European close, fell back and then rose once again into the close up 0.75 vols to its highest in a month. As everyone holds their breath for tomorrow, the after-hours crack lower in S&P futures - to end at the lows of the day - suggests some urgency to cover longs (as opposed to hedge - as VIX did not keep pace).

Going nowhere fast was the theme today as equities managed to end practically unchanged (SPX/Dow down, NDX up) but intraday saw some very gappy behavior (though admittedly in a very small range). VIX is the story of the day in our view - realized volatility has dropped to near-record lows (which had, until a week ago, been a big driver of front-end implied vol compression) and yet VIX pushed higher (with implied vol now at almost a three-month high premium to realized). The point being - protection is bid, and a VIX of 16.5% is much more concerning given its premium than some would believe. Volume was above its very recent and dismal average but still around 15-20 percentage points below normal summer doldrums levels. Risk assets in general trod water today with modest outperformance by Treasuries (yields lower 1-2bps) and negligible moves in FX carry trades - even as the USD is down 0.35% since Friday (mirroring Silver's 0.35% gain). With Consumer confidence dismal, somewhat strangely both Consumer Staples and Discretionary outperformed on the day. Very low average trade size, a low high-low range, and a general inability to pull away from VWAP (+/-3pts only) suggested everyone is on hold (or buying protection as we noted above); but the small flush into the close was not very encouraging.

Not even the almighty power of AAPL could bring to bear a positive end to the day for the S&P 500 or the Dow. Most notably, the Dow Transports are now -2.3% from the highs last Tuesday and diverging aggressively lower. Volume was simply incredibly low today (with London close) in NYSE and S&P 500 e-minis where volume was its lowest of the year by a long-way. VIX soared today, up over 1.2vols to 16.4% with some major put-spread buying in SPY. The afternoon weakness in gold, silver, stocks broadly (and specifically Materials, Industrials, Discretionary, and Financials) tend to indicate a QE-off move but Treasuries (which rallied 2-4bps) were largely unmoved in the afternoon. The USD limped higher also (QE-off) all afternoon but ended the day practically unchanged with AUD weakness the standout. Oil was volatile as Isaac was downgraded, cracks were arb'd, and SPR-release rumors swung it around - though the economically-sensitive commodities all clustered together at the close around -0.5%.

• So Draghi was bluffing after all: ECB Said To Await German ESM Ruling Before Settling Plan (Bloomberg)
• German finance ministry studying "Grexit" costs (Reuters) - it would be bigger news if it wasn't
• Money Funds Test Geithner, Bernanke Resolve as Schapiro Defeated (Bloomberg)
• Top Merkel MP says Greek deal can't be renegotiated (Reuters)
• China Eyes Ways to Broaden Yuan's Use (WSJ)
• Armstrong ends fight against doping charges, to lose titles (Reuters) - Dopestrong?
• Need more socialism: Public confidence in France's Hollande slips (Reuters)
• Seoul court rules Samsung didn't violate Apple design (Reuters)
• France, Germany Unify Approach to Greek Talks (WSJ)
• Stevens Sees Mining Boom Peaking, RBA Ready to Act (Bloomberg)

Frustrated with the know-it-all bullish 'experts' on the Chinese economy lambasting wise boots-on-the-ground deep-thinkers such as Hugh Hendry and Albert Edwards; Marc Faber (who discussed this in detail in the clip we presented here) today set about correcting some of that vacuous chatter on China's dominance (with all its current stuffed inventory). Noting that the Chinese stock market is not exactly pointing to the growth everyone is relying on (and we add since the MAR09 lows it is only fractionally better than Spain), Faber brings up one chart (courtesy of The Bank Credit Analyst) to rule them all. Alongside the mega-bubbles of: Gold in 1970s, the Nikkei in the 80s, and the Nasdaq in the 90s, Iron Ore prices since the start of 2000 have them all beat - and recently (as we noted here) have begun to roll over.

I just finished reading Octopus by Guy Lawson, and it's one of those that fit the "I Couldn't Put It Down" category, much like Den of Thieves, published in 1992. It is the tale of Sam Israel, whom you may remember in 2006 was on the lam from his failed hedge fund/Ponzi scheme. He faked his suicide, was captured, and is now hanging out for the next couple of decades (with none other than Bernie Madoff) in a state prison named, of all things, Valhalla.

Just over 16 months ago, the NASDAQ did an unusual thing. As the WSJ noted at the time, AAPL, which had reached a 20% weighting in the NASDAQ-100, was rebalanced to 12.3%. This weighting was apparently too much for the index-provider who feared "the tech company's big weighting means that a change in fortune for the maker of iPhones, iPods and iPads has a huge impact on one of the most heavily traded indexes in the market." Since 04/05/11, when that rebalance occurred, AAPL's market cap has doubled, while the NASDAQ-100 is up just under 20% ($627bn versus $3.15tn). With the current weighting of AAPL in the NASDAQ-100 at 19.8%, we wonder what is next - as the WSJ noted at the time, any "rebalancing is likely to kick off waves of trading... as money managers scramble to adjust holdings to reflect the new composition of the index." Interestingly, AAPL has reached 20% of the index twice this year already - which just happened to coincide with significant selling pressure on the stock - will third time be the charm?

The market was not exactly ecstatic at the FOMC minutes but certainly squeezed up off its pre-minutes lows to end very fractionally green (S&P small up, Dow down, NASDAQ up - thanks to AAPL's 2% gain - it's 7th in 3 month). Post-FOMC the QE-on trade was very clear - Treasury yields tumbled, stocks popped, USD weakened, and Gold soared. These were quite significant moves relative to recent ranges: Gold broke above its 200DMA - back to early May highs; Treasury yields dropped 10bps - biggest plunge in rates since start of June (as it bounces off its 200DMA). On the week, the NASDAQ is the only major US index in the green (+0.1%) while the Dow is down 0.78%.

The thoughts of the FOMC from a mere three weeks ago - before a 30bps rise in 10Y yields (40bps in 30Y), 5% rise in the NASDAQ, 8.5% rise in AAPL, and 85bps compression in Spanish bond spreads - are out. It appears little has changed in their muddle-through, always at-the-ready, wish-it-were-better view of the world. Via Bloomberg,

• *FOMC PARTICIPANTS SAW ECONOMY DECELERATING AFTER JUNE MEETING
• *MANY FOMC PARTICIPANTS SAID MANUFACTURING WAS SLOW OR FALLING
• *FOMC PARTICIPANTS DISCUSSED QE, EXTENDING 2014 FORECAST ON RATE
• *FED STAFF SAID MARKETS HAVE LARGE CAPACITY TO HANDLE MORE QE
• *MANY FOMC PARTICIPANTS SAW NEW QE AS BOLSTERING U.S. RECOVERY
• *MANY ON FOMC FAVORED EASING SOON IF NO SUSTAINED GROWTH PICKUP

Translation: "Many on FOMC want the S&P at all time highs without actually doing any QE, ever, because that will mean the Fed is officially out of bullets"

After touching four-year highs this morning, the S&P abruptly turned tail and sold back down. AAPL slumped hard off its all-time record high open just shy of $675 - reverting NASDAQ to its peer indices and broadly equities had the worst day in 3 weeks (and only its 4th down day of the month of August). S&P 500 e-mini futures (ES) volume surged to its highest in three weeks - and average trade size was its highest since the lows in early June - along with its largest daily range in three weeks. Volatility jumped (amid some extreme gappiness as AAPL started to lose it) back above 15% (up over 1 vol) - leaking modestly lower into the close as ES saw some intraday covering to lift it 'off-the-lows'.

As we noted last night, the 100bps of outperformance garnered by the NASDAQ (thanks to AAPL's exuberance) in the last 3 days was remarkable. Equally remarkable - the total compression of that 100bps of relative outperformance to zero in the last three-hours...