The Asian markets were mixed, HK -0.73%, Shanghai +1.26% and Japan -0.74%. The HK was hurt by many large caps trading in the U S markets.
European markets were up, Euro STOXX +0.59% and DAX +0.54%. The U S market was up during part of the Europen trading session. EU Industrial Production was up 0.8% in February, -6.4% y/y.
In the U S, Retail Sales rose 0.7% with February revised up 0.9%. The Control Group, used for the GDP calculation, increased 1.1% and February was revised up to 0.3%. These were well above consensus. I said yesterday that the early Easter would bump up these sales.
Business Inventories rose 0.4% in February.
The NAHB builders index was flat at 51.
S&P 500 dropped 61.59, -1.20% to 5,061.82.
It opened up, at 5,157. Around 10 am it slipped to 5,140. A churn with a downward bias reached 5,072 by 1:30 p;m. The rest of the day was a slow tilt down to a close of 5,062.
The market gapped up early as the Israeli situation turned out not to be not as bad as feared. It sagged after a short while. Later in the morning news came out that Israel said it is obligated to retaliate and will. This changed the complexion of the market.
The backdrop got negative. First, the Retails Sales report was way above consensus and the 10 yr T bond surged above 4.6%. This did not help.
As the market sagged a new element became very important. in the morning. Merrill put out a report warning of a flood of CTA selling. ( I warned about that last Wednesday.) See below
" BofA's latest Systematic Flows Monitor note , "CTA equity selling could accelerate on Monday" in what could rapidly turn into a self-reinforcing toxic spiral that send stocks sharply lower, just as the stock buyback blackout period kicks in. According to the bank's models, CTA stop loss triggers are close in the US while in Europe, the STOXX 50 closed Friday near the model’s stop-loss level: "This implies that further downside will likely put pressure on CTA US equity longs" the bank warned, before serving the punchline cold: with the BofA CTA model's S&P 500 trigger now only 90bps away, "we could see a scenario of CTA stop loss triggers, vol control leverage unwinds, and levered and inverse ETFs all selling into the close Monday."
While that report sparked some mockery this morning when futures rebounded strongly, nobody is laughing now that stocks are tumbling, yields are surging, crypto is puking and all hell is breaking loose.
Why? Because - as we clearly warned - the S&P is now down more than 0.90% activating the CTA sell trigger BofA warned about, and sparking reflexive selling as further declines lead to even more selling, potentially leading to a very painful Monday
But it's not just BofA though: moments ago Goldman trader Cullen Morgan wrote that the bank's model agrees with BofA's assessment , and models CTAs as long $170bn of global equities (still in the 100th %tile) after buying +$2.8bn last week. So far so good: the problem is that Goldman now has CTAs as sellers of SPX in every scenario over the next week and month, to wit:
Over the next 1 week…
Flat tape: -$4.5bn to sell (-$5.8bn SPX to sell)
Up tape: +$3bn to buy (-$2bn SPX to sell)
Down tape: -$29bn to sell (-$10bn SPX to sell)
And over the next 1 month…
Flat tape: -$19bn to sell (-$11bn SPX to sell)
Up tape: +$17bn to buy (-$157m SPX to sell)
Down tape: -$229bn to sell (-$59bn SPX to sell)"
Needles to say, this selling process has started now. Today's close did a lot of Technical damage. Trader elements will be prone to sell now. They have been buying winners causing strong moves.
Importantly, when the algorithm funds , like CTA's, sells indexes, that automatically causes selling in the large cap stocks since they are such a large portion of the indexes.
The DJIA declined 0.65%. The NASDAQ fell 1.79% and the QQQ 1.65%. The IWM dropped 1.37%.
WTI slipped $0.25 to 85.41. It is in limbo now, waiting to see what happens in the Middle East.. The XOP lost 1.6% and the XLE 0.9%.
The 10 yr T bond rate was up all day after the early morning Retail Sales report. It added 12.5 bps to 4.624%.
The VIX jumped 11% to 19.23. The declines led, the NYSE 5.3 to 1 and the NASDAQ 3.5 to 1. volume was a bit above average.
The situation has become dicey. A negative flow has started. The level of the Israeli retaliation could determine the direction. Blub
Jerry