97 handles, 2 days

Whew.   97 handles is two days is potent stuff, and that's what the Spooz put in from the post-payroll lows on Friday through the high print on Monday (which wasn't that far off the close.)  This was the biggest two-day rally off the lows since all the way back on....August 27, and my didn't that turn out well?



It seems safe to say that the market has experienced quite a bit of psychological trauma over the past few weeks, no matter bull nor bear.  Obviously, sticky money is going to stay invested regardless of what market beta is doing, but you really have to wonder how much more of this the fast money crowd is prepared to take.  Yes, there is ample opportunity if you're a scalper...but if you're not quick (and good), by the same token there is plenty of opportunity to get scalped.

When equities are in freefall, one often hears the hopeful mutter of "turnaround Tuesday."  Now, alliteration is no way to run any kind of investment process, but it does seem to be the case that outsized moves either side of the weekend tend to reverse themselves come Tuesday.  You'd have to think that chances favor at least a bit of consolidation today after the furious price action of the last week.

What's notable is that- stop me if you've heard this one before- Europe appears to have quite a bit more upside on the charts than the SPX.  Spooz, for example, are roughly 1.5% off the highs of last month's Fed day....but Eurostoxx are nearly 4% lower.  The DAX is nearly 7% lower, but obviously there are some extenuating circumstances there.


When it comes to European equities, Macro Man feels like he's not only beating a dead horse, but cremating it, burying the ashes, and then proceeding to beat those.  Still, it's helpful to remind oneself that proper macro themes don't always come fruition a few days or weeks after you've made your mind up; some, like fine wine, need to age before they are ready.  Of course, in this game being early often equates to being wrong, so it's important to know when to pull the trigger and manage risk.

From Macro Man's perch, the best way to play the theme at the moment is with toe in the water type sizing; he generally prefers to ratchet up risk with a tailwind, so to speak....and right now, European equities still don't really have that.

Elsewhere, the headline non-manufacturing  ISM was a little weaker than expected, but still quite strong.   Interestingly, the employment component registered its joint 4th highest reading in the 18-year history of the survey.  Curiously, 2 of the other top 4 readings have also come within the last year.  While there's not much month-to-month correlation between this indicator and payrolls, a trend basis they tend to match up quite closely.  As such, the ongoing resilience of the ISM figure is telling.


The upshot of yesterday's frenzy is that eurodollars sold off and steepened; the 2nd vs 10th spread highlighted here yesterday steepened by 3.5 ticks.  It's only a drop in the bucket, of course, but every reversal has to start somewhere.  Whether the reversals can sustain, of course, is another question, as  investors these days know all too well.


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Anonymous
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October 6, 2015 at 9:53 AM ×

After a small pullback, the Yen is once again being sold and equities rallying. Shorts are gonna get killed again lol.

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Anonymous
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October 6, 2015 at 10:26 AM ×

FT: having my full size in equity longs (from his post I understand it's not the way MM would play it but we all have our idiosyncrasies), I turned my attention to CCY and was pleased to see that AUD/JPY seems to offer a good risk reward.
It's a story of China doesn't collapse just yet, commodities have come a long way and could take a breather or even stage a moderate rebound, it's also a story of the economy down under being somewhat more resilient than the market is pricing;
I know it's more or less adding the same type of risk but I dipped my toe yesterday with a stop @ 82.70
By the way, with 5M Vols around 13.5 ATM calls are not that expensive considering how far is the stop; I did a bit of both....

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Anonymous
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October 6, 2015 at 10:49 AM ×

The market is once again getting ahead of its self, assuming that the ECB will announce more/extend QE in the coming months. However, I believe that the threshold for the ECB to do more is quite high given that they have very few bullets left. We need to see EURUSD above 1.15 for the ECB to start thinking about more QE. In addition, the VW scandal is going to get worse in the coming weeks as various lawsuits are filed in both Europe and the US. The €6.5bn what they have set aside might be just enough to cover the legal fees the actual fines and claims will be a lot more. Given these negative factors, I think that Eurostoxx would underperform. If anything, I prefer EURxxx and USDEM lower here given that the rate spreads between the US and ROW is falling after last Fridays NFP. Also some of the EM fears have receded in recent weeks and there is some value now in EM Stoxx and currencies.

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abee crombie
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October 6, 2015 at 11:46 AM ×

If your not quick in this market your dead. I don't mind given my size @ work or in the pa, but for some larger players this must be tough.

It's all about earnings for the next few weeks. Should be interesting. Expectations are down a lot already but I don't see amazing news really changing the picture.

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Anonymous
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October 6, 2015 at 11:50 AM ×

The short thesis has (once again) been invalidated.

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October 6, 2015 at 12:08 PM ×

97 handles...yes stunning. Like MM, and several other posters, I respect the rally, don't like shorting explosive technicals, yet don't want to buy at the wrong levels/prices either.

I reviewed the utilities (XLU), think it works in most any environment, as long as no aggressive rate hike cycle. So, I think the utes work in any environment...

Utilities long theme

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October 6, 2015 at 12:10 PM ×

Sorry this link should work. Apologies.

Utilities

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AI
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October 6, 2015 at 12:12 PM ×

The dax goes from down 25% from the highs to down 20% and the short thesis has been invalidated? Comments from someone who clearly has spent much time trading from the short side. Perfectly normal in the context of a bear market if that is what this is.

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Anonymous
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October 6, 2015 at 12:13 PM ×

How so? Dax is in a technical bear market? All other equities are in at least correction mode. You're going to get rallies. Commodities are still garbage.

Rally continues as China is off. Low volume on grind up yesterday. No new sellers. If we didn't have a rally. At start of Q from these levels it would be really worrying.

Earnings season be interesting. If US is decent and rally holds, pressure back on FED. Every time market rallies on bad data it pits pressure on FED. Negative feedback loop. If EU earnings are poor despite cheap currency, well QE aint working.

And we'll all ignore Russia until we no longer can.

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Anonymous
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October 6, 2015 at 12:33 PM ×

From Jan 2nd. Emini -90 handles. Dax & esx +50 but smoked if you're a USD guy.

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Booger
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October 6, 2015 at 1:05 PM ×

I think with the recent NFP and PMI's worldwide, the fed is not going to tighten in December. And if they do not tighten in December then they will probably not tighten in 2016, it being an election year and all.

I think when this sinks in, DX will correct and I am looking to load up on some aud.jpy and aud.usd shorts. Maybe spoos are rallying on pricing in no fed hike in the foreseeable future.

The rally in spoos looks like a bear market rally to me, too fast and I am willing to start fading from 1980 with a stoploss at 2020, the post fed high, with a small (0.2 usual) position size.

In terms of technical, they are pretty bad. Taking a step back from the daily action, the weekly chart still looks ugly for spoos to me. The weekly chart looks like a slow forming top over the last year and breakdown in August with a bear market rally recently. Maybe things have not topped out but it certainly looks like it and that we are in a rollover twilight period where there is serious chop and bear vs bull fighting for supremacy still.

Fundamentals: maybe there will be some sideways action before a serious break but how likely are we going to rally to new highs with these fundamentals ? Everyone has been saying we will be rallying to new highs. Could this be it for the bull market, it's too early we all think. Maybe not ? Sentiment is reportedly bearish but the fund managers and CTA's are all still overwhelmingly bullish.

Earnings roling over, PMI's rolling over slowly, payrolls peaking, economy approaching stall speed and further China weakness will likely push it to stall. Usually EM does not wag the dog but on this occasion, it looks like it will to me. China, I would be shocked if there is not something further bad to chuck up there. The Yuan devaluation and stockmarket meltdown handling showed to me that they have no idea !

The Chinese have been buying resource companies overseas since 2007. Then since 2009 they have been building infrastructure to reduce the cost of mining for their local resource SOE's that are probably very unprofitable at current prices. So they are double or triple leveraged to their own slowdown. And who owns the 20T in Chinese debt issued since 2009 ? Probably the Chinese, so perhaps they are quadruple leveraged to their own slowdown.

Dollar index, can it rally if the fed is not tightening in the foreseeable future ? I am surprised it has not chucked up more. Particularly usd.jpy (UJ). All the yen crosses look ripe for a serious correction. The fundamental factors are lining up: GPIF reweighting done, BOJ not interested in further QE in the immediate future, carry will be miniscule if the fed is not hiking, repatriation of funds to jpy if there is risk aversion, current account surplus to improve if they restart nuclear reactors etc. Yen has been in a bear market for so long now, it is hard to remember the last time it rallied hard.

Euro stox, Dax, although PE's are better than spoos, the valuations were bloated by euro QE. To be bullish on eurostox here you would be thinking Draghi can and will increase QE in the near future. I would imagine more tanking before QE can be applied and we will hear some leakage about that when it is imminent if Draghi leaks to maximize the effect, as is his playbook, being the ex-bankster and manipulator extraordinaire that he is.

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washedup
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October 6, 2015 at 1:46 PM ×

Booger - I have a 12.6 P/E for eurostoxx and its currently the fastest growing DM (yes faster than the US atleast for the last 5 seconds), with govvies at near zero and even a small chance the ECB may buy corporate bonds on general paucity of things to buy, if nothing else - unless there is a full blown financial crisis in the eurozone I see it as the equivalent of spoos at around 1400 - even the most ardent bears on spoos, some of whom populate this board, sound like they would consider being long at that level.If EZ growth stalls and you have to accommodate an earnings cut what would u like it to be?

So what am I missing on stoxx? I get VW, but if u take it to zero that still leaves 99% of that market. I suppose if growth stalls or reverses you could argue for a 20% earnings cut, which would take the P/E to say 15 - is that so horrible?
I confess that I don't understand the hate - must be missing something. Their energy stocks, which are large well capitalized multinationals, have gotten clobbered worse than bakken shale oil ponzmeisters in the last 2 months.

My theory is that funds thought europe was cheap, were right, got long, and were shown the door in the recent liquidation, accelerated with the VW fiasco, and its selloff has nothing to do with fundamentals.

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Anonymous
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October 6, 2015 at 1:55 PM ×

FT@wash
Well stated; moreover they can come up wih doomsday scenarii to their hearts content (usually the same guys who argued 4 months ago that EM slow down wouldn't impact DM financial markets and suddenly found a new religion) but the real question is: what's already priced in?
IMO most of it
I don't say we can't have one more technical washdown (exogenous event / bad set of stats / earnings...)but I doubt we will meaningfully penetrate the august lows

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Anonymous
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October 6, 2015 at 2:23 PM ×

There are 300+ Nasdaqs of upside left in this rally. I am short shorts.

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Booger
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October 6, 2015 at 2:30 PM ×

washed - I would have to defer to you and others on eurostoxx, I don't follow it much and my thought was based on a very cursory amount of research I applied this morning when considering whether to pair a short spoos position with a long eurostoxx or dax position. I elected to just go with a straight short spoos position to keep it simple. Eurostoxx do sound like good value from what you are saying. I wonder though whether they will be taken to the woodshed anyway if spoos were to correct to say 1400. But yep, they are closer to attracting value investors than spoos which have a long way to go before they would attract value types.

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Anonymous
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October 6, 2015 at 3:05 PM ×

Report: Wall Street broker-dealers profits of $11.3 billion in 1st half of 2015, up 29% year-on-year and strongest 1st half since 2011

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Anonymous
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October 6, 2015 at 3:11 PM ×

"The 500 largest American companies hold more than $2.1 trillion in accumulated profits offshore
(…) with just 30 of the firms accounting for $1.4 trillion of that amount, or 65 percent, the study found."

Seems like everyone is making a ton of money.

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Anonymous
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October 6, 2015 at 4:00 PM ×

Germany sold 2046 inflation indexed bonds at -0.09%

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hipper
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October 6, 2015 at 4:22 PM ×

Took a punt in BP yesterday. Sure a lot of stuff related to commodities were already > 10% off lows but if the EZ over SPoos meme is becoming generally "accepted" then maybe EUR could've bottomed too, for now, pressuring USD-denominated assets higher. And there might be some more fires burning in ME, maybe not too much effect but won't reduce supply risk either.

Just with earnings season around the corner, I would't expect too much improvement there considering all the crisis going on. And not that revenues were improving much before, either. The cost-cutting game might already be close to maxed out. So it's purely a valuation game, but considering a potential Draghi put (probably triggered with a hidden fixed FX-rate) it might not be too bad. Fed flip flopping is counter-productive as one might've witnessed. But EZ is really much more sensitive to EUR than Spoos to USD and thus might provoke some reaction.

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washedup
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October 6, 2015 at 4:24 PM ×

"Germany sold 2046 inflation indexed bonds at -0.09%"

Pol - what do u think of that?

Like they say down here in TX, thats f@#ng haalarius

Ah the love affair for bonds - I suppose can't blame people when they've seen that market go one way for 33 years - thats carbon dating old in the world of markets.
Very strong indication today that capital is leaving the US and heading back to EM and commodities, however temporarily, with the dollar the chief casualty as a result - granted Tuesday is not a trend continuation day, so we will give it a couple more days to sort itself out.
But bonds? No retreat, no surrender - everyone from Ray Dalio to Ray Gould loves 'em.

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Polemic
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October 6, 2015 at 4:28 PM ×

Oil breaking up. SPX stalling around 1890 are for 2nd time. But yet it hasn't tanked as most short term punters ere hoping from the off< So no resolution, though the logical way is down but the painful way is up. there for I d have my fiver on an up . I still think that hedges on eq positions must be starting to bleed.

Putin in Syria is more worrying than my glib comment a couple of days ago ( though I would be sitting myself if I was an ISIS guy meeting Spetsnaz. Probably not what a spotty 18yr old from Bradford thought he was signing up for when he thought he was taking on US/UK. Is it true that Chinese are about to fly Jets in from their carriers there too re Debka? http://www.debka.com/article/24926/Chinese-warplanes-to-join-Russian-air-strikes-in-Syria-Russia-gains-Iraqi-air-base Place is fast looking like a weapons testing ground.

Those western sanctions have really done the trick on Russia haven't they .ahhemm

But back to markets biggest shorts have been in Commoditie cos. Oil and oil cos, and HY. So no surprise we see oil stuff bounce but the backdraft of a suitably fitting story of Russia in Syria is always good for acceleration. Have to say though I cant see their action actually touching oil supply other than driving worry buying. 4 years of Mid East mayhem haven't done anything so why now?

pol

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Polemic
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October 6, 2015 at 4:59 PM ×

Oh and washed .. sry didn't see your comment til after I d finished my last. So they are paying -0.09% below inflation for +30yr? Not quiet as nuts as paying fixed negative rates as inflation can still shoot up and you have protection at a small cost. Fixed negative rate bonds compete with cash under mattresses. These don't.

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Anonymous
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October 6, 2015 at 5:23 PM ×

FT: methinks the bearish crowd is making their Alamo stand around here; lightened slightly (down to 80%) booking some profits and getting some abmunition to spank those boys again if needed.
PM complex getting interesting; it took off before the $ got sold...would that be some long term strategic thinkers envisioning some serious trouble in Syria in the next year or two?
The real bubble is not in equities but in bonds of all sorts. The problem with potential ad infinitum monetization is that the widowmaker could turn global....still, I'm itching

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Anonymous
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October 6, 2015 at 6:15 PM ×

FT: eod humour: AUD/JPY was 350 in the early 70s, I would play some retracement since the BOJ is intent on destrying the ccy
:)

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Anonymous
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October 6, 2015 at 6:38 PM ×

@FT - how possibly can bonds be in a bubble with ZIRP and promises of keeping policy accommodation going for longer than necessary. Unlike the gold-standard days (where money supply was limited), there is absolutely nothing on my investment horizon that tells me bonds are in a dangerous bubble. As proof, I humbly suggest the yield on Japanese bonds over the past few decades.

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Anonymous
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October 6, 2015 at 7:25 PM ×

@Anon 6:38
That's precisely what I called the widowmaker as generations (a generation in trading is about 7 years) of traders tried to short JGBs.
However, there is a distinction between price and value....and my experience tells me they usually converge; so, it' s a problem of timing and time horizon
The only thing keeping me from playing the short side is history and human nature.
Since we entrusted our monetary policy to unelected officials who more or less accomodate the politicians, a Weimar like strategy of endless monetization with supressed inflation stats through subtile hedonic adjustment and substitution bias can occur.
It's the path of least resistance.
After all, money is nothing, look at the countless stories of currency destruction, look at Japan and germany post WWII, the wealth of nations are their population, territory and culture...money is just used to transfer wealth from one group to another (and when it's not enough, whoever is in charge has the penal system to back him up)

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theta
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October 6, 2015 at 7:40 PM ×

Regarding these inflation linked German bonds at -9bps, two things: 1) for most of the eurozone periphery this will probably end up being positive real yield, effectively the next best thing to buying DEM. And 2) a lot of buyers would probably have hedged with nominal Bunds, so this yield is more interesting as indicative of inflation expectations rather than anything else.

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Anonymous
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October 6, 2015 at 8:22 PM ×

Best comment on this blog today: "The only thing keeping me from playing the short side is history and human nature. Since we entrusted our monetary policy to unelected officials who more or less accommodate the politicians, a Weimar like strategy of endless monetization with suppressed inflation stats through subtle hedonic adjustment and substitution bias can occur.
It's the path of least resistance."

Very true words indeed...

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Anonymous
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October 6, 2015 at 8:47 PM ×

FT: @ anon 8:22
Thanks for correcting my subtile into subtle....I dreamed I was a frenchman for a second....
Still, this kind of comments will soon lead you to a supermax facility so let's enjoy it while we can....
After all, isn't Russia promoting ISIL by bombing them these days :) ?
Orwellian!
(for the record, 2 of my kids hols US passports and I love americans; I'm a libertarian and I hate Neocons)

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Anonymous
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October 6, 2015 at 9:13 PM ×

i'm with mm on ez v spooz and have been banging that drum for a while now...i think its going to take a time to play out but i'm in...not sure what the catalyst would be but looks like its taken a lot of beating already and positing has thinned out

re overall direction i just dont see how we get a sustained move higher given valuation concerns and dont see leadership anywhere( bios are so 2014!!)
taking a step back with all thats going and spoos with a 2 handle makes me go a BIG YOURS
headline deltas small short with long ez short spooz

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Anonymous
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October 6, 2015 at 9:22 PM ×

"Rally continues as China is off. Low volume on grind up yesterday. No new sellers. If we didn't have a rally. At start of Q from these levels it would be really worrying.

Earnings season be interesting."

OOPS! Yum & Adobe off to a bad start.

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Anonymous
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October 6, 2015 at 9:22 PM ×

And YUM blames.....drun roll....CHINA

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hipper
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October 6, 2015 at 10:13 PM ×

I think it's not that much about land or bases for RU, with almost the lowest pop density in the world. Everyone has geopolitical objectives and the things complicating are the local "powerhouses" Saudi and Turks. Even if US was sincere in creating stability in the region (which as an idea is a bit suspect considering the last +4 years of (in)action), Saudi government and Erdogan complicates this because they actually do want IS and others like their kind to win and install the caliphate in Syria, after which they get to offer a "better solution of their own" and probably the plan doesn't end there. If Syria regime goes its quite hard to see how it could create stability, more likely likewise, would only spread into Lebanon and Israel wouldn't like that at all. There are facts that SA/Turkey support these groups so it's really a proxy war with them and Iran/Lebanon/Russia(/China background) on the other side. But RU intervention is major and has really put a dent in that plan and its surprising that it took so many years to happen. They have IMO a lot more to loose by loosing than the US does, which has basically half of the world in its pocket. Including securing the southern flank and Chechnya more or less stable, maintaining allies and just generally not getting completely isolated. They might even gain a new ally (looking what Iraq has been doing and saying recently). Of course the objectives go both ways and as always, the aim to deny the other side the same benefits. If what happened to Iraq were to happen in Iran, that would be really bad for world peace. But that would be much harder to execute considering the more homogeneous pop of shiites, and thus would make very little sense to attempt and thus much less likely.

The way that oil would get a real face ripper would be even a few random direct skirmishes between SA and Iran, as they have been really barking at each other and already engaging through a couple of proxy wars. The religious rhetoric are starting to take a lead role again and that's a sure sign of things heating up.

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Anonymous
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October 6, 2015 at 10:37 PM ×

About Yum's earning result, it is all about its manu. Seriously, after twenty years, KFC and Pizza Hut are so out of favor in China. Food service industry in China has entered a new phase where big franchises are too big and too slow to change. It is just like that McDonald's has lost its appeal in the US.

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Anonymous
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October 6, 2015 at 11:32 PM ×

Three days' posts with Bloomberg charts? Possibly real time data feeds? Is our Macro Man back in the saddle? Welcome back, I hope?! It's marginally better on the wildly overconditioned NYC/CT floors.

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Anonymous
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October 6, 2015 at 11:49 PM ×

FT@hipper
Sadly, the "free world", as incredibly as it seems, has shifted from west to east; I'm not saying Putin is a virgin but when u listen to the western's media narrative and the spin they are trying to force down our throats, it's pathetic....
Just listen to the Vic Nuland tapes before yanoukovitch's eviction....just look at the selfies of US soldiers proclaiming they don't want to be in the same bed as Al Nosra (read Al Qaeda)....
The inversion of valors is the embodiment of fascism (be it from far right or far left) and, sadly again, I fear the fight for honesty has shifted 180 degrees since the cold war...
Still, in world's history, "democracy" is an accident and not supposed to last for long...

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abee crombie
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October 7, 2015 at 2:56 AM ×

I am not a fan a Putin, the guy is a megalomaniac, but the US and UK seem to think he is outright crazy and everything he does is wrong. Syria is a giant mess, has been for years already, no one in the West did anything bc, IMO they dont care and the powerful forces in the middle east (not israel) wanted bashar out. I have my doubt about helping the "rebels" as a path towards a finite solution for many fairly obvious reasons.

Putin knows the west is stupidly slow to act on anything unless it punches them in the face so he is being opportunistic, but I dont know what the objective are. Agreed with hipper, Russia has a lot more to lose here. Putin isnt stupid, though he does appear trying to be expanding the empire, which might have clouded his judgement. But I think Syria, like Ukraine is another play where he likely has an advantage.

If oil rips, you just sell it.

Thanks for the comments on YUM. I wanted to short the stock for a while but never found the right set up...meh. All restaurant stocks (except MCD) are too high here, IMO, for cyclical businesses that have low margins.

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Basho
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October 7, 2015 at 7:23 AM ×


Booger,

Like you, I favour the big rollover thesis but the apparent relatively extreme bearishness (II etc) together with strung out put/calls has had me wondering if we first need a decent rally, or at least a whole lot of sideways action.. To head down from here, wouldn't we'd need to see longer timeframe players starting to meaningfully change their allocations? So, I'm most curious about this overwhelming bullishness you're picking up . . . is that from personal contacts and general scuttlebutt?

As for the yen, it has been a bloody big run. Still, specs seem to have turned tolerably bullish and the market might be most surprised by another leg down.

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