The FED did not do much for the market today. Judging from the lasting effects of QE3 they did not do a whole bunch the last time either. The market is rightly focused on company prospects, the global growth story and earnings. That is still a mixed bag but not as bad as it looked 4 months ago. The ECB is not really rolling out their TARP- lite plan fast enough for investors (although PIIGS bonds are trading at short term highs and lower yields). The next news from the FED will be QE3 is over and that will only happen when the fiscal situation straightens out. The no FED panacea sell off today was pretty mild when most of the earnings reports today were ok. I am sticking with my closet theory that market volatility will not slow (or we ral
With the German High Court signing off on the ECB bond buying bonanza, the ball is now back in the politicians court. The problem, of course, is that is where the ball has been for 3 years. However, the market looked very favorable at the ruling, which takes a huge chunk of systemic-type risk out of the market for the short term. Or did it? I think there are two parts of the puzzle.
Well the good news, at least from the markets perspective, is that the ECB outlined some kind of plan for buying and supporting Euro area debt. For the most part, it was the same assembly of loose promises and goodies, but that should be enough to get the animal spirits rolling in Europe until the end of the week. Add to that a pretty decent ADP payroll report that seems to point to employers getting past the tumult of last year’s crisis. The SPX cash closed over 2% for a big relief rally. Here is where it gets weird.
The market got to a point today where it looked over the wall and could not take the plunge one way or the other. The S&P 500 E-mini could not hold onto the highs of the day and the VIX could not hold onto the lows of the day. So, how did it end up, and what did it mean?
As you can see from my illiterate scrawl on the chart, the VIX made a new near term low and promptly decided that was low enough. The rally in the VIX led the market to decline from its peak by about 30 min.
I love the low volume rallies. One thing about market players is that they start to know the game. Good employment news is out, and the market took off this morning. At this point, traders who need to sell stock just wait as the news driven algo guys bid up the market in an attempt to chase the news. One thing we have been watching is the slow decline of volatility this last couple of days. The market has been almost all news driven out of Europe since mid – July (and most of the 2nd quarter). We first started observing it in Opti
I have to think that if I were an algorithm and a phase like “Central Bank Action” came across the tape, my electronic synapses would snap into action and start firing off the buy orders. That is a call to action for most machine readable news trading. The issue right now is one of liquidity. There is volume going up for sure, but not what I call volume at a price, which is a sign of a healthy, liquid market.
Monday I wrote my “Backwards is no Bueno” post about the unusual action in the VIX futures and how the cash briefly backwardated with the soon to expire VIX May contract. That activity is not very good for the market, mostly because I think it show some nerves. Traders, rightly so, look around and see a little more uncertainty and price up SPX options. Sometime that push over comes the normal premium in the futures, as it did for a while on Monday. The slides below tell a continuation of that story. For longs, it is not a great one (even AAPL got smoked today).
In my short stint as a floor clerk (Ronald Reagan just left the White House), I learned an early lesson in liquidity. One of the partners in the firm I worked for would use low liquidity as a partial definition of a Bear Market. Sitting on a trading floor, clerking for a trader who was watching the paint dry was a visceral experience. Watching every equity bid hit in the move up to Gulf War I (Dow around 2300), I could feel no one wanted to do anything. Usually, in a liquid market, there is action between the bid and offer. Not so for that stretch in 1990. No trader would give a floor broker a break filling paper because of the dread overhang of uncertainty with the Iraq invasion.