GOOG

Cautiously optimistic. Yes, really. 

• Dead Heat for Romney, Obama (WSJ)
• The Cheerful Billionaire Who Thinks Obama's a Socialist (Businessweek)
• "Get to work, Mr. Japanese Chairman": Japan Exports Tumble 10% as Maehara Presses BOJ to Ease (Bloomberg)
• Chinese Investors Fear Chill in Canada (WSJ)
• Rosneft Buys BP’s TNK-BP Stake for $26 Billion in Cash, Shares (Bloomberg)
• Hong Kong Defends Its Currency Peg for First Time Since 2009 (Bloomberg)
• Democrats threaten payroll tax cut consensus (FT)
• Spain's Rajoy gets mixed message in regional votes (Reuters)
• Merkel to warn UK on Europe budget veto (FT)
• Netanyahu says doesn't know of any U.S.-Iran talks (Reuters)... neither does Iran, so near certainty
• Der Kurrency Tsar: ECB’s Knot Backs Schaeuble Call for Stronger EU Budget Power (Bloomberg)
• Fannie Mae Limiting Loans Helps JPMorgan Mortgage Profits (Bloomberg)

Roughly one third of the S&P has reported earnings so far, with another third reporting in the next five days and almighty AAPL on deck Thursday evening, and if there is one word to describe what has happened so far, that word would be "ugly." The same word would be used to describe how Q4 is shaping up to be. And that word will be very a optimistic prediction of what 2013 will bring unless a major catalyst develops that pushes Congress to resolve the fiscal cliff situation. So far that catalyst is missing. But going back to Q3 earnings, here is how Goldman's David Kostin summarizes events to date: "3Q reporting season is roughly one third finished. Two early conclusions: (1) Information Technology results have been startlingly weak with high-profile revenue disappointments by the four horsemen: MSFT, GOOG, IBM, and ORCL. (2) EPS guidance for 4Q has been overwhelmingly negative across all S&P 500 sectors with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect further EPS cuts of 6% loom ahead. Firms reporting next week: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX." Sorry Bob Pisani, better luck spinning earnings favorably next QE.

What kind of batter crowds the plate after a pitcher has aimed a fastball at his head? “Batters” have been doing it routinely on Wall Street lately — most recently yesterday, when they held the broad averages buoyant while Google shares were getting pasted for 80 points. During this single-stock onslaught, the Dow Industrials were never down more than 50 points and closed off only slightly with GOOG still $53 in the hole. This wasn’t the first time bulls have leaned into the plate while “dusters” whizzed past their ears.

Whether its AAPL, GOOG, or the broad equity indices, today saw the bulls 'Baumgartnered'. Despite a valiant attempt to rally into the close, because Bernanke forbid the Dow close the week red, the NASDAQ is 4% off its Wednesday lows (-1.3% on the week) as AAPL suffers its largest 3-week decline since the March 2009 lows (closing with a $609 handle -3.6% today!) and Tech is -5.7% from QEtc. The weakness was absolutely systemic as cross-asset-class correlations were extremely high and CONTEXT (our broad risk-asset proxy) tracked lower and stabilized into the close. Gold, Copper, and Oil all ended the week clustered together down around 1.7% as the USD ended practically unchanged. Credit's mid-week epic short-squeeze lingers in traders' minds as equities underperformed. Treasury yields end the week up 9-11bps. VIX jumped back above 17% suggesting further weakness for stocks. S&P futures are dropping after-hours - closing at lows of the day - disregarding the late-day cash ramp.

When you are out this evening at your cocktail party, discussing the state of the world, how everyone should be buying GOOG on the dips, how AAPL looks cheap (and the mini-iPad is coming soon), all that cash-on-the-sidelines, and how sentiment is so low; perhaps this handy little global economic scorecard will help bring a sense of reality back to the conversation. Barclays' Julian Callow provides everything you need to know about financial balances and economic performance (but were afraid to look) in one handy table.

Caution is the word of the day.

Is this it? Nobody knows for sure, but just like yesterday's GOOG pogrom sent 165 hedge funds (at least) scrambling for cover (but, but, it is a perfectly efficient market - unpossible), and destroyed their October P&L in a millisecond move, forcing even the CME to lower index margins to avoid margin calls (as we predicted), so today's violent drop in AAPL stock to the furthest below the 100-DMA since June 2011 may test the nerves of all those residents of the hedge fund hotel cAAPLfornia, which at last check was a record 230 longs as of June 30 (and now well higher), many of whom have a cost basis that is now above the current price. Will selling remain cool, calm and collected, or will someone panic ahead of what is sure to be another late day margin call bonanza for the repo desks forcing massively levered beta-chasing hedge funds to dump assets in order to procure the suddenly invaluable margin? Stay tuned and find out.

We indicated yesterday, as GOOG re-opened, that the day's Volume-Weighted-Average-Price (VWAP) would be a critical level in the next day or two. The earnings SNAFU heard around the world and the sheer mania and herding going into earnings meant only one thing - the big boys will want out in a hurry (big crowds and small doors). And so the onslaught of talking heads appeared to play down this 'aberration', to talk up the future, and explain why everyone should BTFD. The machines, however, told a different story. From the moment we reopened, GOOG was tickled higher by market-maker algos desperate to allow their institutional order-flow out at anything like a VWAP level (the level that their bonuses are judged on and commissions paid from). Sure enough, by the open of the day-session today, we had reached yesterday's closing VWAP and a flood of large block size sell orders hit the market. Watching VWAP today will be key - that's what the machines will be doing as they revert every dip to dump at this mystical level.

GOOG’s ill timed oops in the early afternoon dumped the S&P 500 approximately 12 handles from what been shaping up previously as a fourth straight “checkmark” session.  The technology behemoth provided another example of a non-financial firm’s missing earnings expectations by a country mile.  Despite the shocking nature of the disappointment, the TICK never registered a print worse than –925 in the immediate wake of the surprise headline, a highly unusual phenomenon given the aggressiveness of the downward move.  This suggests large institutions stayed with their VWAP buy programs out of confusion or necessity.  We can envision only two scenarios for such adherence to purchasing in the face of clear extremely negative news on, what was at the time, the third biggest stock in America...

Today's just announced revenue and EPS misses from both megacaps McDonalds and GE (in addition to MSFT, GOOG, INTC, IBM and everyone else) merely adds to what has so far been an abysmal earnings season, and one which is set to continue for far more weakness into Q4 (why? Hint: China, and its unwillingness to ease, and thus provide the much needed demand oomph US corporates need). Yet, the pundits will claim, economic conditions in the US have improved. How does one reconcile this disconnect? Simple: as Bloomberg Brief shows in two simple charts, what we are undergoing is not the first, but second case of annual deja vu, as the economy supposedly picks up in Q3 and Q4, courtesy of the latest and greatest artificial sugar high from the Fed, only to slide promptly back into decline once the initial euphoria fizzles. However, this time there is a major difference: corporate Y/Y revenue (and in many cases EPS) comps have turned negative, which means that unlike before when corporations would be the silver lining in a dreary macro environment once the economic downward trend resumed, this time around there won't be a convenient Deus Ex to provide a last gasp reason to hold on to the myth that things are getting better. This, in turn means, that with "dividend" assets no longer attractive, the investing/trading crowd will rush into hard assets like crude (recall the $125/barrell Brent barrier for economic decline)... and gold. But that is a story for another day.

• Debt Fuels a Dividend Boom - Firms Collect Payouts, and Investors Get Yield; 'Reminiscent of the Bubble Era' (WSJ)
• Black Monday Echoes With Computers Failing to Restore Confidence (BBG)
• Poll: Obama Leads in Wisconsin, Iowa (WSJ)
• Gold Imports by India Seen Climbing First Time in Six Quarters (BBG)
• Europe pushes ahead towards ECB bank supervision (Reuters)
• ... And fails: Summit fails to agree timetable for aid to failing lenders (FT)
• Toyota Prius Dominates California as State’s No. 1 Model (BBG)
• Italy raises €18bn in huge bond sale (FT)
• Diplomacy inbox fills up as U.N. awaits U.S. presidential vote (Reuters)
• Goldman braced for more revelations (FT)
• China power brokers agree preferred leadership team (Reuters)
• EU, Japan Warn Against New US Swaps Rules (WSJ)
• Why VaR is the most meaningless contraption ever: Morgan Stanley shows the ‘flaky’ side of model (FT)
• Made in France Trumps Consumer Choice in Hollande Jobs Quest (BBG)
• North Korea threatens South over propaganda balloons (Reuters)

This is simply incredible. 40 minutes ago, just as the farce that is the market was in danger of not closing green despite the tech fiascoes from GOOG, MSFT, CMG, MRVL, AMD, MS, and all the others, we had one simple thing to say:

Time for CME to lower ES margins a little more here

— zerohedge (@zerohedge) October 18, 2012

And sure enough, seconds ago...

UPDATE: MSFT (-2.6%), MRVL (-9.2%), AMD (-2.5%), and CMG (-14%) all ugly after-hours

ICYMI - GOOG -8.1% weighed heavy on the entire tech sector which really needed little help after IBM and INTC's earlier disappointments. But while there was a caTECHstrophe there, when GOOG re-opened, algos ran wild and ramped S&P futures all the way back up to VWAP and GOOG made a valiant attempt to reach that mystical level also. But we should not fear, for reading too much into the fact that three of the world's largest tech companies are doing poorly is no reason to not BTFD and so it is that the Dow Industrials and S&P closed only marginally lower and Dow Transports had a green day (never seeing red). USD strength in the afternoon - as GOOG scared - pushed commodities down with silver doing worst and gold -0.77% on the week. Despite general equity weakness, Treasury yields limped higher in the afternoon now up around 17bps on the week. Oil round-tripped after dumping into the US open as weak macro data hit and then resurging on news that the Keystone pipeline would be closed to a few days due to 'anomaly'. VIX ended unch at around 15%. S&P futures are fading off VWAP after-hours.

The squid speaks