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Mysterious Trades, Apple, and The Stock Market Drop – Having Fun?

Mysterious Trades, Apple, and The Stock Market Drop – Having Fun?

 

Having fun yet? The market the past couple of days has been intense to the say the least. For a while there today, it had seemed like that 2633 level I plotted out the on Monday was going to hold, but then the end of day sell-off smashed through. The finish to the day in the stock market was terrible, with the markets finishing on the lows.

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But if we look around the market as a whole complex there are a lot of conflicting signals, and I’m not entirely sure which is right, any longer. The equity markets around the world are in turmoil, even tonight Japan is down over 3 percent, while Hong Kong is down about 4 percent.

The Hang Sang in Hong Kong topped out at about 33,500 also on January 26 and is now trading 29,500, a decline of roughly 12 percent. The FTSE 100 in London peaked at 7,785 on January 16 and is currently trading at 7,160, a drop of about 8 percent. So apparently this seems to be a global unwind, not just US related.

Meanwhile rising yield is not just US based either, with the German 10-Year Bund increasing by a considerable amount. Get this, on December 18 the 10-year Bund was trading at only 30 bps, as of today it trades at nearly 80 bps, that is huge! US 10-year rates were at roughly 2.35 percent on the same date, and are now at almost 2.85. But what seems to be interesting as well, is that we see no flight to safety anywhere! Surely not in Bonds.  Not in Gold, and not in the Dollar. The question is why?

The idea that this sell-off is about runaway inflation concerns seems lame, Gold is not even rising, nor is there any sign of that. For that matter, Oil has been falling recently as well.  Additionally, wages increasing by 3 percent, as noted in the January employment report, are anything but overheating.

What about the Fed unwinding the balance sheet, well to this point it seems to be more talk than action. There is zero evidence of a balance sheet unravel to this point. It is yet to be seen when a meaningful decline starts to happen.

Fed balance sheet

But if the market is freaking out about higher interest rates in the US shouldn’t the dollar be rising? But rates are also increasing in Europe as well, and perhaps that is why we are not seeing the dollar rising. But then some will argue that it is tax reform and the massive deficits to come, that will cause the dollar to weaken, but the dollar has hardly moved in either direction, but more in a range recently.

Meanwhile overnight libor rates, have also remained relatively unchanged. 

Mysterious Future Trades

But then when looking at a chart of the S&P 500 futures, it seems interesting to see a tremendous amount of volume to suddenly trade, when the cash market isn’t even open, in the middle of the night. The chart below shows that at 4:30 am on February 6, a tremendous amount of volume trades, more than any time since before September.  The trade reversed the futures and was of course on the day the stock market saw that big snapback 2 percent rally.  The real question is what is happening at that time of the day to see that type of volume trade? Asia is winding down, and Europe has only been open for about one and half hours, while the US is mostly still sleeping.

S&P 500

The S&P futures traded as low as 2,535 and the volume spike occurred around the price of around 2,575 we will call it. Watch that level in the futures.

S&P 500

It is bizarre, and it also came on the day after the VIX had a crazy surge and there was a substantial downdraft in the equity market in the middle of the day.  Somebody either made a colossal bet or covered a substantial short.

Let’s continue to monitor this and see if anything else comes of it. There are no coincidences though.

Apple

Apple closed right at its uptrend, and that is now two times it has tested that support level. Let’s hope it continues to hold. Apple was one of the first stocks to start declining, let’s see if can be one of the first on the way higher.

apple

Maybe Apple is the key to this market.

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