Finally, the market realizes that it was the patsy all along. This is what a real cliff looks like:
Of course, none of this news to any of our readers. From November 13:
Once again, it will be up to the market, just like last August, just like October of 2008, to implode and to shock Congress into awakening and coming up with a compromise of sorts.
But please listen to all those “expert” political journalists, reporters and pundits, who said all is well and not to worry about anything. After all they had pretty slideshows and lots of clickbait to make you believe they know stuff.
The good news: ES can only drop 5%, or limit down, on Sunday night when the market gets more of the same.
The better news: SPY is open late tonight, long after ES closes.
And it is different this time (from the debt ceiling debate of last year) as investorsd have been herded into risk assets en masse by an over-zealous Fed head…
Where it likely is not at all be different, is how much further the market will have to plunge to “extract” a deal from Congress… roughly another 15-20% lower. Which with a near record margin debt on the NYSE will become quite a sight to see.
For the first time since May, the S&P 500 has fallen for 5 days in a row. VIX has very much heralded the fact that investors were not as bullish as media-types would like to believe – as we have vociferously noted – and today’s jump in the VIX pushes it to six-month highs over 22.5%. The S&P 500 futures ended the day-session at the week’s lows testing down just shy of last week’s flash-crash lows. Meanwhile, while equities slumped catching down to Treasury yields, commodities were relatively flat as was the USD; it seems that the excess longs in equities relative to the rest are unwinding – a different picture than what was seen during last Summer’s debt ceiling debate.
S&P 500 futures slumped further after the day-session close to test the flash-crash lows from last week…
VIX has been sending the message (and we have been relaying iot – especially yestewrday’s repeat of the dump-and-pump from pre-crash last week!)… VIX (red) vs ES (green)
VIX has seen the biggest 7-day rise in 16 months – reacting in the same way as we did into the debt ceiling debate last year…
And VIX’s term-structure is following the same path as last summer!!
Which leaves the S&P at the lows pre-Draghi II…
The difference is that this time – equity investors are the most net long since 2007 highs!
Equities were notably weaker than other asset classes into the close (upper right) – though ETFs saw VXX slamming higher (sending risk lower) as we closed…
Meanwhile, the Dow Transports remain +2% on the month while the rest of the majors (RTY excluded my apologies) are red…
Gold and Silver close the week unch with Oil higher…
Charts: Bloomberg and Capital Context
Bonus Chart: AAPL lowest close since February 17th!
Bonus Chart: Oldie but goodie… Treasury vs S&P 500…
Looks like today everyone in Congress was short. Here’s why:
- OBAMA SAID NOT TO MAKE NEW OFFER IN FISCAL CLIFF TALKS
- OBAMA OFFER DETAILED BY SOURCE FAMILIAR WITH WHITE HOUSE MTG
- OBAMA SAID REITERATING PROPOSAL FROM LAST WEEK ON FISCAL CLIFF
- OBAMA PLAN INCLUDES RAISING TAXES ON EARNERS OF $250,000 AND UP, EXT OF UNEMPLOYMENT INSURANCE, ADDRESSES OTHER OUTSTANDING ISSUES-SOURCE
So much for a deal, and so much for the invisible DJIA support at 13,000.
and AAPL from its Wednesday’s VWAP to yesterday’s VWAP… still trading? still think the professionals aren’t dumping technically into every rip?
Or, as Al Pacino would summarize it…
UPDATE: S&P says an impasse will not prompt an immediate downgrade – ramp-on (perfectly to VWAP and faded)
The Dow just breached 13,000 to the downside and S&P 500 futures are bleeding lower (catching down to a more anxious credit and Treasury market). Now well below VWAP, we worry that the plethora of headlines about to be unleashed on the investing world will create chaos in the markets (most likely futures first given liquidity). Will the meeting (which started at 1510ET) end after the day-session close allowing futures traders to play? who knows…
AAPL used the rampathon to get to Boxing Day’s closing VWAP for a heavy dump.
(SGS Subscription required) • 2012 Saw Meaningful Degradation of Fiscal and Monetary Policies
and of Economic, Systemic and Political Stability
• 2013 Should Encompass a “New” Recession, Dollar Turmoil, Rising Inflation
• A Tumble Off the Cliff Would Trigger Confidence Problems That Never Could Be Recovered Fully
• Revisions Due for Seasonally-Adjusted Unemployment Data