Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Update: MLNX, a $2.6 billion market cap company, was up 3% today before being halted after hours and crushing guidance by preannouncing horrible revenues. Expect many other S&P 500 companies to be forced to do the same now that their market value, driven almost exclusively by "someone's" ceaseless selling of VIX futures and by correlation engines which assume every company has to rise (and sometimes even fall) by the same move as the biggest synthetic indicator, the E-Mini, is so disconnected from any cash-flow reality, that only the Fed can possibly assume there is fair value for the stock market at current levels.
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The drop in VIX in the last two days is the biggest percentage drop on record (based on Bloomberg's data) as the S&P 500 futures (ES) have managed a 70-point rally. The exuberance at today's open ebbed through the middle of the day but then resurged into the close as the day-session range was actually quite narrow (sub-10pts). High-yield credit surged (leading the way) coupled with VXX (huge odd volume spike) as pain trades were everywhere. FX markets were decidedly unimpressed even as Treasuries tracked along with stocks for most of the day (though lagged the late-day surge as 10Y yields stalled out at the 12/187 highs). Commodities held on to gains even as the USD turned positive on the week. On the bright side, all those who have been invested in the S&P since March 2000 can exit at (nominal) breakeven and all it took was a 400% increase in the size of the Fed's balance sheet. This feels very delicate and all anchored on a massive protection unwind (as volumes and blocks were dumped into the late-day ripfest).
Massive volume spikes into the closes of the last two days… as ES lurches over 70 points…
VIX drops over 33% in the last two days…
and the synthetic ETF VXX was crushed – with an odd volume spike… -11.5% to all-time lows…
The collapse in VXX was the major risk-on driver today
as was HYG's surge…
10Y Yields snapped higher to 12/18 recent highs and stalled out…
FX markets were not following along…
as EURJPY – which was heralded last night as indicating the world was bid – slid back to unchanged from New Year's Eve…
So – FX markets did not buy it;Treasuries did not buy it; and massive vol compression (remember how overly short vol the market is and just how painful that would be) drove a huge short-covering spike in stocks… and volume was not that big by the way – despite all the excitement of a 300+ point rally in the Dow on TV.
Charts: Bloomberg
