The Liquidity Drain Appears To Have Resumed
Stocks finished the day lower, although not by much, even though they finished well off their intraday lows. Not sure what happened in the morning, but we saw implied volatility rise sharply.
If I had to guess what drove trading today, it was a big morning drop that pushed implied volatility sharply higher. The index fell to around 6,870, below the put wall at 6,900. That led to those puts being monetized and closed out, which started pushing implied volatility down. As the index rose, anyone who sold calls or bought puts on the way down got screwed and had to rush to unwind those positions. With the index stalling around 6,950, it took a close buy imbalance to finish the final thrust higher.
If I had to guess…
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What was really interesting today about the META rally was that the 5-Yr CDS actually widened, not a lot, but it did widen. Not what I would have expected to see given the stock market’s relief rally. This will be something to watch in the days ahead. For now, the CDS is trading within the same range it has been in, but a push higher could change how the market views the equity.
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So much for QE, whatever you wanna call it. Reserve balances fell under $2.9 trillion. Imagine what reserves would be if the Fed weren’t buying T-bills. I know everyone is very excited about the quarterly refunding announcement on Monday, February 2, but I would think it could have some importance if, for some reason, the Treasury decided, because of the ballooning debt level, thought that it would be appropriate to increase the end-of-quarter TGA balance to $950 billion. That would not help liquidity.
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Expanding on liquidity, today and tomorrow are Treasury settlement days. Today, Bitcoin fell about 6%. At least based on the technicals, Bitcoin appears to have broken out of a bear flag, and if support at $83,000 is broken, the $75,000 region could be the next stop. Maybe the settlements that come next week for another
can even help it get there.
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More By This Author:
Fed Steady, Earnings Mixed, And Oil Takes Center Stage
Earnings Season Sets The Stage For A Dispersion Unwind
Volatility Measures In Stocks And Metals Hint At A Potential Shifting Regime
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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