Thursday, January 15, 2015

European Flash Crashes

There you have it, a flash crash in Europe.  On the Swiss National Bank news, you got the Eurostoxx index drop 3% in minutes, only to go right back up.  Algos gone wild overnight.  Now everyone is expecting a bazooka QE from the ECB but unusually, that isn't really helping the European market as much as one would expect.  And oil is up even more in premarket.  Yet the futures are nearly flat after a huge roller coaster ride.

Treasuries remain extremely well bid and it looks like risk managers are reducing risk here, just based on the heightened volatility across markets.  Despite what many expect to be a QE announcement next week from the ECB, the market doesn't seem to care.  Only thinking about current volatile price action and reducing size just in case the market implodes intraday.  Eurostoxx is outperforming the SPX futures today, so the Europeans are obviously looking forward to a QE announcement next week.

I don't know what to make of it.  The action is just wild and crazy.   It feels like we should be bottoming sometime before the week is over.  Or perhaps yesterday was that bottom, to be successfully retested on this SNB news overnight.

The volatility is highest at the end of moves.    We are close to the end of this down move, just based on the crazy action here.  One more capitulation move lower should be it for this down leg, and then we will probably grind higher again with ECB QE like nothing ever happened.

P.S.  Just saw the AAII Bull/Bear numbers.  From last week, Bulls up 5.1% to 46.1%, and Bears down 6.2% to 21.5%.  AAII has been stubbornly bullish since the August bottom, even staying relatively neutral through the October downturn.  They have been right, but it speaks to the investor complacency out there.  Just something to think about from a longer term perspective.


Anonymous said...

Earnings are coming in bad.

There is a lack of demand in Europe.

US companies will miss earnings because of global sales coming in weak.

There is talk that Switzerland talked with the ECB beforehand and knew that maintaining their peg after devaluation of the Euro from QE would be too costly, resulting in this unexpected action. Therefore QE will happen.

Euro is pricing in this QE now and will likely bounce after the news.

I feel the same for bonds.

There will be another play to be made shorting bonds. That could be tomorrow.

Longing TBT or FXE is tops on my radar.

Futures down again. Not sure if 1975 area on S&P will hold for a tradeable bounce.

Anonymous said...

This blog writer has a tool called the PPT that i've seen before call bottoms correctly. It has greater than 70% accuracy. It's calling a bottom tomorrow but he thinks selling will resume after the bounce.

If the futures hold down overnight and open down tomorrow, maybe we get the bounce from the start.

Anonymous said...

Anonymous said...

All these bank earnings look like shit.

Then you look at their multi year chart and the fucking prices are way way up there and look like they can go down another 25% from year easily. This is not a good sign at all for a long term buy and holder. I feel bad for these 401K fuckers and other mutual fund fuckers. They have no clue what's coming.

Market Owl said...

Futures plunging. This market is so overvalued and so overowned by he investment community that I don't know a gap down of 1% is all that tempting. The market is down five days in a row, but the move has been so orderly that the market is not even that oversold.

Anectdotally, I still hear a lot of V bottom talk, as if we will bounce any day now and in straight up fashion, like it is a given.

But this is our third decent drop in three months, the dip buyers have pretty much bought, and the chasers of course have bought since we had new all time highs a couple weeks ago with huge ETF inflows.

I think this selloff will be nasty, and probably last another week, and The only savior is not the ECB, as I originally thought, but the Fed, becuase they will come out with super dovish language that will hammer the overloved dollar at their next meeting, Bonds are pricing this in right now. The dollar is close to a top, And that is the best news that the S&P can hear, because this strong dollar is a royal pain for US multinationals.

Anonymous said...

Idea for a 50% trade :

1/3 of your money in BAC 14 calls if BAC trades down to 14.75 area tomorrow.

14 March calls should trade around 1.12. Meaningful bounce within the next couple days should take BAC back to 15.50.

But being conservative and expecting BAC to make it back to 15.50 by the end of the month, and given premium time decay...

At that point given current in the money premiums for 15 March calls (about 27 cents) I'm assuming the calls will be worth at least 1.70.

Market Owl said...

This market feels like 2000 to me. Not 1999 like David Tepper thinks. That rally we saw on Xmas was the blowoff top, as there were huge inflows into SPY to catch the bounce.

The most common rationalization I hear is TINA, there is no apternative. The best house in a bad neighborhood. US stocks are overowned and overloved. And way overvalued. Scary to hold long term.

Volatility is always higher at the end than in the middle of a trend. We are at the end of this monster Six year bull market.