Market Wrap

To say today has to be one of the strangest days of intraday trade I've ever seen would probably be an understatement, the pin of the market was ridiculous, however I have to wonder whether it was a true pin through the entire day or to the normal 2 p.m. with the market just not having that follow through demand off Wednesday's F_O_M_C.

With the R2K the best performer at 0.36%, this wasn't exactly follow through, more like market noise, in fact market noise is usually at least a half point (+/-.50%), the Dow and SPX at +.018 and 0.19% respectively and the NASDAQ 100 at a mere 0.05% which is just about as close as you get to unchanged and still claim a green victory. When taking a closer look today, market action was actually quite poor, rising VIX, rising TLT, HYG unable to hold and even using a short squeeze in the Most Shorted Names that lasted nearly all day, but really picked up the last 4 hours of the day, only 1 of 5 major averages and that was the R2K, again for a gain of 0.36% while safe haven assets rallied along side! (you'll see below and at the MSI charts).

Since Friday June 6th when I said I expected the move's upside momentum to wane and the move to start to resolve to the downside, this is what has happened in the NASDAQ 100...

Green is the move expected to lose momentum and start to resolve to the downside, yellow is Friday 6/6 when I expected the momentum from the move to die off and a reversal process to start to resolve this move to the downside, over those 2 trading weeks (10-days), the NASDAQ 100 has put in a noisy gain of +0.22%, not even a quarter of a percent, the Dow even worse at 0.05%, while the R2K had fallen behind and needed to play catch up (as we entered a call position last Friday for this week for the Russell 2000, it has had the best performance at +1.06% over the same 2 weeks, and the SPX 0.61%,

Now consider that to get these paltry percentages, this week saw the largest Most Shorted Squeeze of the last 14 months and still, not much in the way of results.

Just about every index now has a string of small bodied dojis or stars, some hanging men and shooting starts. As you can see above, it's candlestick chatter and a lateral trend.

While the final hour looked like the SPY Arbitrage might activate, even that was shot down as TLT and VIX gained on the day against their correlations.

 TLT's afternoon divergence that looked as if it would push the Flight to Safety Trade lower, actually saw that backfire and TLT moved higher in to the close with 3C quickly confirming the move.

 The CBOE VIX rallied against its correlation to move up on the day, putting in what looks like a daily candlestick reversal.

The last 3 days form a bullish candlestick reversal with today's candle being the confirmation, bullish engulfing of yesterday's Star (loss of momentum/indecision candle which is significant following a large bearish candle the day before).

 This shows the SP-500 pinned laterally all day, yet the VIX didn't hover at lateral levels, but gained as it seems from very recent post F_O_M_C activity that VIX is receiving some attention.

 Even VXX, Short Term VIX Futures have gone from in line to leading positive the last several days.

And that VXX negative divegrence which made me think the SPY arbitrage may be activated toward the close, was shut down as VXX moved higher as well in to the close with fast 3C confirmation of the move up, kind of strange to see VIX moving up in to the close for the last 2-days, which is significant because they are both post F_O_M_C. The point being, as benign as the policy statement sounded, it seems traders may have figured out how this ends with inflation forcing the F_E_D's hand to hike rates well before they want to, it's not a decision or choice, it would be a necessity.

HYG tried to lift the SPY arbitrage, but it was in to distribution early as it started...

Ultimately it didn't get anywhere with the Safe Haven treasury trade working and VIX standing up to the monkey hammer, even though Spot was hit at the EOD, it had pushed higher all day.

Ironically, the very mechanism meant to lift the market ended the day in worse position than it started due to protection and flight to safety trades...

APY arb which was on track , especially as HYG started going vertical when I posted, Quick Market Update. The SPY Arbitrage actually ended at the worst levels of the day, again due to VXX strength as it ended the day at 2-day highs and TLT strength as it ended the day at intraday highs.

 The Flight to Safety trade, TLT ending at highs of the day


Short Term VIX Futures ending at highs of the day, actually the last 2-days. 

What's wrong with this picture when the MSI is squeezed, fails to move 4 of the 5 major averages yet Flight to Safety and Flight to protection trades end at the day's highs without any manipulation?


As you see above, the SPY arbitrage failed, ultimately the only thing keeping the market stable in 4 averages and gaining in 1 was a strong short squeeze, but they didn't get much for their effort.

Most Shorted Index vs. the Major Averages...

 As you can see in red, from 12 p.m. on and especially the last hour, the Most Shorted Names were targeted for a squeeze, that failed to lift the Russell 3000 above it's morning intraday highs.

 The same squeeze failed to lift the SP-500 above its morning highs.

The NASDAQ 100 failed to move below it's intraday highs, even with this short squeeze which wasn't as strong as the post F_O_M_C o Wednesday, but the VIX was knocked down Wednesday as well, it was rising in to the afternoon today as you see on the charts above these.

 The Dow 30 couldn't put in a higher intraday high even with the short squeeze.

The only average to move above a.m. highs was the Russell 2000 and still, not getting much of a gain out of such a long squeeze, +0.36%

Of the 9 S&P sectors, only 2 closed near a half a point, Energy of course at 0.49% given the Iraq conflict and Healthcare at +0.48%, the other 3 that closed in the green, Financials at 0%, XLI (Industrial ) at 0.02%and Materials at 0.18%, a weak day with losers coming in at: XLK (technology) -0.68%, Consumer Discretionary at -0.69%, Consumer Staples at a loss of -0.94$ and Utilities pulling back after a very strong week with a loss of -1.43%, that  still leaves Utilities with a 3+% gain over the last 7 trading days.

S&P sectors on the day...

S&P sectors intraday...

Yesterday I posted what I think are two very important posts that give you a feel for what's really going on, which I believe is Institutional players believe the inflationary trend causes the F_E_D or rather forces the F_E_D to hike rates long before their guidance, it's one of the easiest explanations for the way Treasuries/Yields (which have caused commentators to scratch their heads) have been acting.

The first post was Gold is Telling Us Something and the second and maybe more important, 10-Year Yield (Bemchmark) vs. the Market with the 3 most important charts arguing against the illogical "either stocks or bonds are wrong" and introducing the 3rd option which has been 100% with predictions...

 10 year rates vs the SPX at the very top of the 2007 market and...

The same chart right now.

There hasn't been a single divergence like the ones above that didn't result in a market top or the inverse divergence resulting in a market bottom.

The not so-stealthy culprit...

Inflation...

As for Precious metals which we have been following for some time as they carved out a base and gold miners, Precious Metals had their best week in 4 months with Gold above $1300 and silver above $20 with gold now higher than the SPX year to date in just this short period. Remember, gold and silver are bought as inflation hedges, typically in anticipation of inflation, the one thing that forces the F_E_D to hike rates.

It was very difficult to take away any next week forecasts as there was so little intraday movement in 3C or the averages, it was largely in line as TICK was trading in a +/- 250 band!

 If you didn't get a chance to read last night's 10-year benchmark vs the market, I'd check it out. With no F_O_M_C follow through (indicative of a knee jerk move), carry trades selling off, Yields dropping to market crash levels, Flight to safety trades rallying (including Utilities) and now VIX not being hammered two days in a row in to the close as is the custom, something has changed since the F_O_M_C.

I'll be looking very closely next week at Treasuries and VIX/volatility in specific, I suspect we are going to see even more changes as today's market action, even with the R2K rallying at the EOD, isn't normal with TLT and VXX closing at their highs.

I thought I'd share this with you simply because the phrase"It's NEVER different this time" is a lesson investors haven't learned in nearly 400 years going back to the Dutch Tulip Craze.

 From ZH...

While the price analogs of the last few year's exuberance in US equity markets are enough to worry all but the most systemically bullish "believer"; we suspect the following article from the LA Times In the Spring of 1987 will raise a few hairs on the back of the neck of perpetually optimistic extrapolator...

It's never different this time..

"One of the largest bullish factors is burgeoning worldwide liquidity, thanks to expansive monetary policies by central banks. That has helped fuel a surge of foreign investing that could propel US stocks higher, regardless of what happens to the American economy, some analysts say...

Low interest rates also help stocks by making Treasury securities, certificates of deposit and other interest-paying investments less attractive. The sluggish economy, meanwhile, keeps the Federal Reserve from driving up interest rates and prevents inflation from overheating...

Also, the sluggish economy--by keeping manufacturing rates low--discourages money from flowing out of financial assets into such investments as factories and machinery."

     - LA Times, March 8, 1987; a few months before the October 1987 crash

Read that again!!

Never different.