Fast market fast Updates. Note how the market is reversing big time today. Our risk indicator , the OMX index, is up 3,5-4% from the bottom panic earlier today. Today’s liquidation of leveraged positions might be the bottom for this crash, at least at this time. Many stocks going into positive territory, and we could expect a huge squeeze today. Below OMX and DAX charts.
Some quick updates on the European morning session. We had a big wash out, especially in smaller stocks this morning. Some good miners got killed this morning as overleveraged investors had to puke due to margin calls. The markets are getting some “stability” at these levels. As our readers know, one of our favourite risk measures is the OMX Index. After the initial panic, the OMX has started gaining some. This could well be the wash out we have been waiting for. Stoxx flirting with resistance and trading above last night’s close. All in?
Obama celebrated his 50th Bday yesterday with a 60 points plunge in SPX futures. With Markets in a total panic mood, we await today’s NFP figures. Although the American markets are down only 10% from the top (only some days ago), the illiquid summer Trading dominated by Algos feels very very scary. Below some great points from Macro Story;
Being honest, no one knows. But, using the current road map it appears we may have a little more selling before a decent move higher. Below is the updated 2007 “analog” as compared to the current market. Few interesting points.
The move in 2007 from Point F to the next low was 15.3%. The market then rallied 10% before another leg lower.
The current move from Point F to the current low is 11.1%. Interesting a 15.3% move from Point F would bring the SPX to 1,143 which is the rough target of the head and shoulder’s pattern and where key support levels come into play.
At some point this market will rally and will rally hard. Remember there are a lot of participants who view this selloff as excessive and based on fear. They view the macro data as a soft patch and see the Fed ready to launch QE3. When this market rallies they will be very loud in their “I told you calls.” Many shorts with conviction after a day or two of market strength will in fact panic and begin to believe in the health of the economy contrary to what they know in their heart.
A French court has ordered a judicial investigation into the role played by Christine Lagarde, the newly appointed head of the International Monetary Fund, in a €285m arbitration payment to a controversial businessman. http://ftalphaville.ft.com/thecut/2011/08/05/643916/lagarde-faces-probe-over-role-in-tapie-affair/
American International Group, the insurer that almost failed in the 2008 crisis, could now withstand a severe downturn, its chief executive said after a market sell-off that presents a variety of challenges for the company. The FT reports second-quarter results published on Thursday, http://ftalphaville.ft.com/thecut/2011/08/05/643876/our-crisis-is-over-as-aig-posts-profit/
In the frantic flight to safety on Thursday, Treasury yields touched an all-time low of 26 basis points, the NY Times reports. Rates on even shorter-term credit, including six-month Treasury bills and overnight loans in the vast market for repurchase agreements http://ftalphaville.ft.com/thecut/2011/08/05/643866/flight-to-safety-leads-to-negative-rates/
LinkedIn, the professional networking site that went public in May, reported a 120 per cent increase in revenues for the second quarter and a slight increase in profits, the FT reports. The results beat analysts’ expectations http://ftalphaville.ft.com/thecut/2011/08/05/643806/linkedin-reports-120-revenue-increase/
Global stock markets plunged on Thursday as central bank interventions in Europe and Japan failed to soothe investors’ concerns over economic growth and the eurozone debt crisis, reports the FT. The European Central Bank bought government bonds for the first time since March http://ftalphaville.ft.com/thecut/2011/08/04/643771/central-bank-intervention-fails-to-quell-nerves/
China’s ICBC has agreed to buy 80 per cent of the Argentine operations of South Africa’s Standard Bank for $600m, according to people familiar with the plans. The deal is the most high-profile move by a Chinese bank into Latin America, a resource rich key trading partner, and is set to be announced after Jiang Jianqing, ICBC chairman, meets Cristina Fernández, the Argentine president, on Thursday.http://www.ft.com/intl/cms/s/0/b0ce0414-bec7-11e0-a36b-00144feabdc0.html#axzz1U23Xut17
Asian shares succumbed to heavy selling Friday, while the euro and other risk-sensitive currencies were knocked hard, amid intensifying worries European debt problems and U.S. economic woes could tip the global economy into a double-dip recession. Japan’s Nikkei Stock Average tumbled 3.6%, after touching its lowest levels in more than four months, Australia’s S&P/ASX 200 lost 3.9%, touching a two-year low. South Korea’s Kospi Composite fell 3.6% and New Zealand’s NZX-50 lost 2.4%. http://online.wsj.com/article/SB10001424053111903454504576488930424677652.html?mod=WSJAsia_hpp_LEFTTopStories
Every now and then it is healthy to reconsider what ones thought were in the past. What did one think about the markets, why, what was the strategy etc? With SPX reaching some rather “extreme” levels very fast, we feel our short term targets have been reached. Before proceeding, consider what you said, only two months ago. Below post from June on why the TOP was in. Back then it felt “wrong”, today it feels very right. Time to reconsider where the future is….and don’t forget who stuffed the market at the very TOP.
So we have a RISK OFFFF day today. After the wax on wax off market for the past weeks, we think the top is in. After trying to rally yesterday, everything reversed big time today. The set up is perfect. Like we wrote earlier this week, sentiment indicators are suggesting the top is in http://www.thetrader.se/2011/05/30/sentiment-indicators-suggesting-the-top-is-in/.
We have had people puke vol, and today they are chasing it. They still don’t want to understand Taleb’s words of wisdom, “don’t buy vol when you have to, buy when you can”.http://www.thetrader.se/2011/05/31/volatility/
As we laid out earlier this week, the market had reached important resistance levels, and failed to go above these levels. Instead we are getting big reversal wih decent volume on the down move. http://www.thetrader.se/2011/05/31/spx-and-dax-the-greek-winner-charts/
The speculator longs puked out their Euros at lows, and even went short, watched it go up, as suddenly Germany was Greece’s friends, and all was happy again, just to see it top out again. Specs have caught the currency moves totally wrong, and all moves have been going against the crowd. http://www.thetrader.se/2011/05/31/currency-moves/
We got the risk commodities pushing higher, just to get people to rush in again. With Silver reversing today, expect new big moves washing out these new longs.
Early this week, NYSE announced it’s margins. We are now at very high margin levels, meaning people are now more than fully invested. That capital on the sideline, is not there. It is looking for the exit.
All in all, it is a very nice set up, for a Flash Crash, just to clean out the system.
Only a few weeks ago, people were buying anything in order to achieve returns. Now the tide has turned, and some are now willing to pay the banks to hold their cash. It is interesting times out there. WSJ reports,
BNY Mellon said that it will charge 0.13% plus an additional fee if the one-month Treasury yield dips below zero on depositors that have accounts with an average monthly balance of $50 million “per client relationship,” according to a letter reviewed by The Wall Street Journal. The charges will take effect on accounts held on Aug. 8, and will be charged in the subsequent billing cycle.
“In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment,” the bank said Thursday in an emailed statement. “We have notified certain clients with extraordinarily high deposit levels that we will begin implementing a 13 basis point fee on the excess deposits. Clients who maintain routine deposit levels will not be affected.”
Full article, click here.
Yes, the Panic is in. Many Markets have already experienced a Crash. Eurozone burning, the US having it’s problems, Fukushima leaking again, and the World feels like there is no tomorrow. Selling aggressively into the already unfolded Panic, is probably a bit too late. Majority of markets are trading well below 200 day averages, and the strong support levels. Despite that, Nasdaq is on support levels, the Dax showing similar pattern as earlier this year. Maybe the brave and stupid are to buy this, but the other side is discounting a total collapse of the system. Some charts below, Spx, NDX and the Dax.
With the Market in total panic, and the Algo Maniacs in charge, please refresh our posts from two weeks ago. With a total lack of liquidity, nobody is able to hedge, nor price risk in a normal fashion. The end product left, is the HFT Algos dominating all trades, while the Market implodes. Welcome to the Star Wars of Trading. Below GM Trades during last year’s Flash Crash, everybody forgot about as Ben was buying SPX futures.
Please also check out the post about Market Resonance. It seems we are in the middle of it….
Guest Post from Macro Story,
Using the Treasury TIPS (Treasury Inflation Protected Securities) one can determine inflation expectation simply by subtracting the treasury yield for the same maturity. As an example.
10 Year TIPS currently yields 0.29% (inflation adjusted yield)
10 Year Treasury currently yields 2.66% (non inflation adjusted yield)
The difference of the two is the inflation expectation over 10 years in this example 2.37%
Who cares and what does this have to do with QE3? The Fed has made it very clear a deflationary environment scares the hell out of them. Any threat of deflation and the Fed will flood the market with liquidity in an attempt to cause inflation. Sure there are benefits in their eyes of higher stock prices but to simply think if the SPX hits a certain level QE3 will be enacted is naive group think.
Below is a chart of inflation expectations over the past few years.
Notice the trend going into the announcement of QE2. Clearly inflation expectations across the entire treasury curve were moving below the Fed’s target of 1-2%.
QE2 was successful in rising inflation expectations as indicated by the sharp move higher once the program commenced.
Today look where inflation expectations stand, well above the levels of last summer. Should the economy soften further, demand will fall and so will the threat of inflation so QE3 is still quite possible but as of today I would not expect an announcement at Jackson Hole this month other than a reference that if inflation expectations fall that the Fed will begin another program.