Via FBN Securities' Michael Naso,
Thoughts from the Options Desk and the Technical Desk about this Mornings Action
Month End: It’s the last day for underperforming or performing hedge funds to get names off the books so they don’t show up in quarterly report which equates to selling pressure.
Position Closing: Chatter that there was and maybe still is a massive asset allocator selling equities and buying bonds to rebalance books as the equity move made them a bit too long equities which again equates to selling pressure.
Holiday: There is very little liquidity because of the Jewish holiday making any selling pressure magnified however as of noon the S&P 500 is running +20% vs its 30 day average volume.
High Yield: Many High Yield traders have been trying to sell HY and IG bonds today with quarter end upon us, much like they did at the end of the June Qtr. Given the lack of liquidity and participants today, HY sellers have no bids to hit, so they have turned to selling equities and underlying names to hedge their positions or de-risk. Tuesday the slope of the BofA Us High Yield Master II OAS 200 dma turned higher for the first time since May 2012. The changing of trend has forewarned of equity markets largest reversals since inception of this HY index.
SKEW: SPX Skew is at some of its highest levels in years, showing traders are running for out of the money puts, usually spike skew is closer to a bottom then a top.
Volatility: VIX is up 18%, its biggest 1 day % move since July 31st.
TRIN: Highest intraday TRIN reading since Feb 3rd '14, which is an indication of material selling pressure (the Feb 3 spike marked the years low).
Sentiment: Bears in the AAII survey jump to a 7 week high, majority of the new Bears moved from the Neutral camp rather then from the Bullish camp.
S&P 500 Levels of Support: 1954.50 ( 100 dma), 1946-44, 1936
Chart Below Showing High Yield putting pressure on Small caps which in turn is applying pressure to the S&P 500