Evaporation of Liquidity

It seems rather unfortunate that the hack of an AP twitter account can cause more of a disturbance in the market than an actual terrorist bombing in Boston. A 15+ point dive based upon hacked falsehoods:

It seems unlikely that today’s rally was a recovery and continuation of the rally that we have experienced since the middle of November. In fact, it seems likely that today’s rally was more of a short-covering fueled bounce than a continuation of something “good”:

What is actually kind of entertaining in this market is the complete apathy in options and implied volatility. 10 Day realized volatility has ramped up to 20%+, but the VIX dropped to 13.48%. I might be Naive, but I have found that the best indication of future volatility is recent volatility…

I am not biting. Euro was down today, gold is slanting negative once more, DBA (agriculture commodity ETF) was down about 1% today. Doesn’t seem like a happy picture going into a temperamental season.

Posted in Markets.

Tagged with commodities, DBA, EUR, Euro, implied volatility, moving average, realized volatility, SPX.

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By SurlyTrader – April 23, 2013

Noteworthy News – April 22, 2013

Economy:

What Does Productivity Mean For Unemployment? – Atlantic

Reinhart, Rogoff… and Herndon: The student who caught out the profs – BBC

How much unemployment did Reinhart and Rogoff’s arithmetic mistake cause? – Guardian

China Stuck With Sub-8% Growth as G-20 Confronts Slowdown – Bloomberg

Markets:

Marijuana’s Per-Ounce Production Price Could Drop To 62 Cents If Drug Is Legalized: Report – Huffington Post

Feds Save Beer Drinkers from the Possibility of Slightly Increased Prices – Reason.com

Fed and Bank of Japan caused gold crash – Telegraph

The gold price crash is further evidence of market rigging – Telegraph

Politics:

A Tax System Stacked Against the 99 Percent – New York Times

Is Raising the Federal Gasoline Tax the Best Way to Pay for Highways? – Wall Street Journal

Banks:

Why Canada Can Avoid Banking Crises and U.S. Can’t – Wall Street Journal

Goldman’s Big Guns Fire Dud in Defense of Megabanks – Bloomberg

Posted in Economics, Markets, Media, Politics.

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By SurlyTrader – April 21, 2013

Trend Broken – What Next?

Yesterday’s bounce might have been a relief for the bulls, but today’s swoon most likely re-ignited some ulcers. The S&P 500 has broken its upward trendline with convection and had a minor bounce off of the 50 day moving average:

Lookout Below?

On top of the ugly trading, we are starting to see a shift in investment banking sentiment with some calling for significant declines ahead:

Equities and oil were again weak today, but the more interesting question is just how volatile everything is going to get. My feeling is that the magnitude of the move in gold might just be a foreshadowing of the volatility we could see in the coming weeks and months. The realized volatility in 2012 averaged out to about 12%, but let us not lose sight of the volatility we can see in mildly volatile years. In the past few days the rolling 1 month realized has jumped from 7.5% to 15%, but could it go to the 50%+ that we saw in 2011?

I certainly wouldn’t bet against it.

Posted in Markets.

Tagged with crude, S&P 500, SPY, Volatility.

1 comment

By SurlyTrader – April 17, 2013

Risk Flare Ignited

Investors often explain to me that volatility should be very low because of the abundance of liquidity in the markets which is directly due to easy monetary policy across the globe. My immediate response is that the liquidity is there in abundance until it is gone. Long dead are the days when human market makers begrudgingly bought into sharp down-drafts in risk assets in order to provide liquidity. In the “modern” financial arena, you can hear a pin drop on the bid side of the order book when a sharp correction occurs.

It only takes one day for the market to change its mind. There are three rather noticeable dislocations in asset classes.

1) VIX

Today we experienced a 43.2% increase in the VIX. This is in the 99.93 percentile since its inception in 1990:

Graphically we can see that the change has limited company:

2) Oil

The downward spiral in crude prices over the last two days pales in comparison to the jump up in the VIX. The two-day move of -5% only gets into the top 95th percentile of observations since 1983:

3) Precious Metals

Anyone levered and long in the precious metals space is crying uncle. Gold sold off like a banshee over the last few days and even gave bitcoin a run for her money:

Just how bad was the two day 13.67% drop in Gold? Beat out the VIX at the 99.98 percentile since the beginning of 1975:

It never seems that this kind of volatility happens in isolation. Therefore we might just be in for an interesting spring and summer…

From the S&P 500’s standpoint, the trend was broken and there is little support remaining. 1550 might be bounce, the 50 day moving average at 1540 as well, but it seems like 1525 is in the gun sites: