Banging the Close

Yesterday I mentioned the very strange, almost desperate feel to trade with the market having scraped, clawed, pushed transports or the VIX and for what? Apparently so a +0.04% and a +0.02% close in the Dow wouldn't break the official 10-day winning streak, now the biggest winning streak in the Dow since November of 1996.

Today's market was definitely looking like it was going to rollover, I had posted a lot of charts that showed how bad it looked, it went no where for a while, gaining .04 cents and started down before the big guns were brought to bear.

So what is banging the close, it's something I hadn't seen before using the VIX until I noticed it about 5 or 6 months ago, but really noticed the trend over the last couple of months, here's what 1-day looked like in January of this year.

That's the VIX on 1/11/2013, look familiar?

Here's the VIX today...

 The VIX in green vs the SPX in red, this managed to take the SPX within 1 point of the 2007 all-time SPX high at 1565.15.

High Yield Corp Credit (HYG) was also used, which is dislocated longer term as a leading indicator from the SPX, but as a choice in the credit markets which often lead the equity markets whether that be intraday, over a week, calling a swing top or bottom before the market or calling a major top or bottom before the market; we've used credit as a leading indicator for a long time so the equity market does pay attention to credit and when I say this I mean algo based trading, here's an example of HYG Credit today...

HYG is one of the first picks or "Credit of choice" in the High Yield field because of the huge liquidity HYG provides, it's easy to get in or out of a position. Note that HYG didn't start moving up until the SPX started moving down, thy met and then "banged the close" so to speak.

Interestingly here's HYG in red vs the VIX today.

However the underlying trade in HYG looked a little different...

HYG intraday

What's interesting is that the pure High Yield Credit market acted a lot differently...

 After following the SPX closely recently, today the bottom fell out.

 Here's a closer look at today, it reacted 180 degrees/opposite of the market and the more liquid HYG, it's only a guess, but being a less liquid market, but still a first choice in a risk on move, it seems someone thought it best to get while the getting was still possible.

 I took a look at the 3C chart and was surprised, it looks like the "getting out" has been going on in to higher prices for a longer time than I thought.

In fact a much closer view of the same chart shows what would be a small accumulation period which we often see to lift prices so they can sell in to higher prices, this being just the tail-end of a longer period and once there's no money/support/demand left prices fall, but this looked a bit more desperate.

However, back to the VIX because this is one you simply can't deny as it makes new 7+ year lows on an obvious move in to the close. The VIX itself is a real time updated INDEX from the CBOE, however VIX futures and options started trading several years back, this is why VXX and UXVY can and do look different than the VIX because the VIX is calculated using S&P options, however the VIX spot price is determined by trade in the Futures and Options and VXX and UVXY are ETFs of the "Short Term VIX FUTURES", NOT the INDEX.

Thus, to move the VIX, one doesn't have to sell a ton of puts across the entire S&P component list, they just need to sell the futures and when they bang the close, it doesn't take as many futures, it just takes a concerted effort all at once which today happened in a minute.

One thing I found interesting while doing some research was the change in leadership at the NY F_E_D's Leadership which you may remember was Brian Sack. For those of you who don't know, they NY F_E_D is the regional branch that is responsible for executing all F_E_D and F_O_M_C policy such as P_O_M_O or any actions taken by the President's Working Group on the Financial Markets. Check out what happened to VIX FUTURES when new leadership under Simon Potter came to be...

The blue arrow shows the transition from Sack to Potter and the what happened to VIX FUTURES as of about July of 2012, interesting huh?

As for some other leading indicators...

 HIO This is High Income Opportunity Fund, risk off

 The Yen is going sideways again, last time it did that we had an ugly bout of volatile chop

Here it is starting again

Market Breadth was a smidge better, but no where near any kind of correction and the worst of the worst, grew worse...

Here's where the % of stocks 2 channels below their 200 moving average were yesterday and now today.

Take a look at the TICK for an image of market breadth...

 The TICK has been getting exceptionally thin as the market breadth and volume has.

Today's TICK was unreal between -250 and +600, I have never seen such a narrow range, only in the afternoon did it act normally.

So what does Bang the Close mean? According to the US Commodity and Futures Trading Commision...


Banging the Close: A manipulative or disruptive trading practice whereby a trader buys or sells a large number of futures contracts during the closing period of a futures contract (that is, the period during which the futures settlement price is determined) in order to benefit an even larger position in an option, swap, or other derivative that is cash settled based on the futures settlement price on that day.

Futures are a bit higher tonight before the European open, but nothing stands out.

Tomorrow could be a very volatile day with Quadruple Witching, the expiration of Stock Index Futures, Stock Index Options, Stock Options and Single Stock Futures.