With volatility hovering around 25.00, investors are piling into the iPath S&P 500 VIX Short-Term Futures ETN (VXX) today. Just before 2:00 p.m. ET, VXX had already traded over 1 million shares and is well on the way to breaking the ETN’s volume record of 1,094,140, which was established on May 21st.
So long as I posted this morning in regards to the disparity between options volatility and stock volatility I should not that....well, that disparity is now gone thanks to the large directional moves in the market this week and the VIX decline.
Just to be clear, the data regarding that particular disparity had no directional bias for the market, as per McMillan. What it did have was a bias to resolve via an uptick in volatility. And from the perspective of stock volatility, that did happen, although a better description is that they met in the middle.
What does have predictive value (bearish) is the combo of that with the big 1 month futures premium. But now 1 leg of that combo is gone as there's basically normal options premium to stock volatility.
On the flip side, I found that outlier VIX days, as defined by relative strength on strong market days, are predictive of market outperformance 1 and 3 weeks out. And that's what we see today so far.
So throw it all together and you have....probably one of those weeks where short options players are getting squeezed and pushing it further and further on the margins.
As reported in LBO Wire this morning, oil and gas-focused private equity firm White Deer Management LLC has defied the tough odds facing debut managers in the current economic climate.
It has held a $301.5 million first closing of its debut fund, taking the fund nearly halfway to a $750 million target, according to a Securities and Exchange Commission filing.
Debut fund managers face a tough road in a fund-raising environment in which even established firms are having trouble securing capital from cash-strapped investors. But White Deer has several things going for it.
For one, co-founders Ben Guill and Tom Edelman have long track records in their chosen industry. Guill hails from First Reserve Corp., a well-respected energy-focused private equity firm, while Edelman held senior executive positions at large energy companies including Biofuel Energy Corp. and Patina Oil & Gas Corp., both of Denver.
Perhaps more importantly in the current environment, the firm’s own managers proved willing to put their money where their mouths are. White Deer’s general partners chipped in some $100 million of their own money to the fund, representing a hefty 13% of its target, according to prospective investors.
The firm plans to invest the new fund in mid-size oil and gas exploration and production companies, as well as in energy infrastructure and companies that service the oil and gas industry. Its investment strategy is akin to funds that First Reserve raised back in 2000 and 2001, when that firm had a heavier emphasis on oil and gas and before it pushed deeper into renewables and other subsectors of the energy industry.
For more, read the LBO Wire story.
The Private Equity Council this afternoon will formalize its support of President Obama’s proposal that private equity firms be required to register as investment advisors with the Securities and Exchange Commission. Mark Tresnowski, a managing director and general counsel of Madison Dearborn Partners, will deliver the trade group’s message via testimony in front of the Senate Subcommittee on Securities, Insurance, and Investment.
Tresnowski is expected to argue against private equity’s ability to cause the type of systemic failure that has promped the proposed legislation, but will concede that “excluding any asset class from the new regulatory regime could contribute in some way to diminished confidence in the effectiveness of the new regulatory regime.”
He also will ask the senators to be mindful of the increased administrative costs that such rules could create, particularly for smaller firms: “We do believe Congress should direct regulators to be precise in how new regulatory requirements are calibrated so the burdens are tailored to the nature and size of the individual firm and the actual nature and degree of systemic risk it may pose.”
The full text of his testimony is below:
We’ve received a bit more info on last month’s shutdown of Verified Identity Pass, operator of the “Clear” system that allowed members to pass quickly through airport security.
The company said on June 22 that had been “unable to negotiate an agreement with its senior creditor to continue operations.” peHUB has now learned that the senior creditor was Morgan Stanley, with Verified Identity owing approximately $33 million.
A loose confederation of investors is kicking the company’s tires a bit, and considering whether to make an offer. But there are two big impediments to a potential deal. First, Verified Identity founder and ex-CEO Steven Brill has sued the company over what he refers to as a salary dispute (the records are sealed). Second, there is a requirement that Verified Identity must erase its user database by October 1, if the company remains dormant. Not sure I understand the mechanics of that requirement, but do know that the company’s user database is its most valuable asset.
Verified Identity was founded in 2004, and raised around $54 million in VC funding. Most of that capital came last year, when Verified Identity Pass raised $44.4 million at a pre-money valuation of approximately $90 million. Spark Capital led that round, and was joined by Syncom Venture Partners, Lockheed Martin, GE Security, RRE Ventures, Baker Capital and Lehman Brothers…
Here we can see the same pattern in the international stock indexes as in the U.S.: shares holding their May lows and now rebounding into the May/June trading range. Emerging market stocks (EEM; top chart) have shown impressive support in the 30 area; shares from Europe, the Far East, and Australasia (EFA; bottom chart) have held well above 43. On a relative basis, FXI (China; not shown) looks quite strong; RSX (Russia; not shown) is still well off its highs.
Draper Fisher Jurvetson is in “very advanced discussions” to launch an affiliate fund in Japan, according to managing director Don Wood. The firm was poised to consummate and announce a relationship with a Japanese firm last year, but the deal was put on hold when the U.S. financial crisis occurred.
Wood declined to name the firm it is working with until an official partnership agreement is in place.
Venture capitalists have traditionally had a difficult time penetrating the Japanese market. “It’s historically been quite closed to outside investors,” says Wood. “There’s a tradition there where the smartest university graduates are tempted to join larger, stable companies. It’s harder to attract talent to smaller companies there.”
Still, Japan is the world’s second largest economy and entrepreneurship is starting to take root there, says Wood. He attributes the change to a critical mass of successful startups new founders can emulate and a greater understanding of how startups work in other countries gleaned from the Internet.
“People are no longer just looking in their own backyard,” Wood says of Japanese entrepreneurs. “They have proof that you can raise venture capital, take your company public, make yourself a lot of money and create a lot of jobs. That’s really just occurred in the last three to four years.”
Venture capitalists invested $44 million into 43 Japanese companies last year, according to data from Thomson Reuters (publisher of PE Week). The actual amount invested may be significantly higher than indicated by the data, as many of the deal values were undisclosed.
One of the most attractive aspects of Japan is its Mothers market, a subset of the Tokyo Stock Exchange that promotes high-growth, small companies, says Wood. “It’s a training-wheels public market,” says Wood. “You could be public there with a $25 million market capitalization.”
In fact, the average trading value on the Mothers market at the end of 2008 was just less than $14 million, according the exchange. Mothers hosted 12 IPOs last year and 23 during 2007.
One of the biggest recent new issues on the exchange was Internet Services company Gree, which listed last year in a $143 million IPO. The company was founded by a 26-year-old, according to reports, and is one of the companies Wood believes will act as an example for other entrepreneurs.
DFJ already has affiliates in South Korea, China, Europe, Brazil, Israel, Vietnam and Russia.
During the downturn, DFJ is working to make its existing affiliates as successful as possible, says Wood. “We don’t have a big push to be planting flags in other markets,” he says.
Other markets of interest for DFJ include Southeast Asia, Malaysia and Australia. The firm had once worked on an Australia affiliate called DFJ Southern Cross, but never fully consummated that partnership, says Wood.
An earlier version of this story appeared in PE Week, a sister publication to peHUB.
Being a West Coast guy, I often find myself three hours behind the rest of the blogging world when I stumble out of bed. Once or twice a year, I manage to sleep through the open and generally spend the rest of the day playing catch-up, as has been the case today. Now that I am mostly coherent and have digested the bulk of the news and market movements for the first three hours of today’s session, let me offer some comments.
While stocks are enjoying an Intel (INTC) inside jump, the VIX is up a shade as I type this, seemingly intent on staying above the 25.00 level. On the other hand, three of other major market index volatility measures I follow (VXN, RVX and VXD) are all down in the 5-7% range for the day. The outlier among the secondary volatility indices is VXO, the volatility index for the S&P 100 index (OEX), which is only down about 2% on the day. (I am not sure exactly how to parse this information, but with the meat of second quarter earnings season just around the corner and options expiration only two days away, I would not be surprised to learn that portfolio managers are looking to lock in some profits and add some additional downside protection.)
In the last day or two, a number of other bloggers have commented up on the volatility premium issue. In VIX Predicting the Future…and It’s Cloudy, Jason Goepfert of Sentiment’s Edge has an excellent chart of the premium of the front-month VIX futures to the spot VIX index and points out that a high premium has lately been bearish for stocks. Adam Warner of Daily Options Report picks up the premium theme in While We Were Churning…… as does the Decline and Fall of Western Civilization blog in Volatility Curve Warning Again.
The premise is exactly the same reasoning as is behind the VIX:VXV ratio and the VXX:VXZ ratio: when short-term volatility measures become substantially out of line with longer-term volatility measures, the divergence is most likely to be resolved by the short-term measure ‘correcting’ in the direction of the longer-term measure. With the VIX:VXV ratio recently hovering around 0.85, this means a VIX spike is more likely to take the ratio back toward equilibrium than a substantial drop in the VXV index. By the same token, VXX and VXZ are more likely to converge as a result of a jump in VXX than a decline in VXZ. Of course, the numerator and denominator can always converge at the same rate, but that type of resolution seems to be relatively rare.
For those who may be interested, my various estimates of fair value for the VIX are largely in the range of about 28-29 at the moment, suggesting that short-term volatility is due for a bounce soon.
As a reminder, anyone wishing to speculate on the VIX using options and futures should note that VIX options expire next Wednesday (July 22), with the last day of trading on Tuesday.
An interesting development in volatility land. (Daily Options Report)
Leveraged ETFs based on factor returns are on their way. (IndexUniverse)
On the never ending risks of 3x leveraged ETFs. (Aiki14)
With all the ETFs out there, is there room for three proposed funds? (Morningstar)
Is a 130/30 ETF in your future? (Bull Bear Trader)
On the importance of checklists in investing and more from the Value Investing Seminar. (Manual of Ideas)
Seven questions for Roger Ibbotson. (All About Alpha)
The ratings agencies should be very nervous. (Big Picture)
Splitting investment and commercial banking vs. a cap on bank size. (naked capitalism)
When you are the market, stop buying. (WSJ)
The recession may be over soon, but the good times are a ways off. (Calculated Risk)
Is there a market for subscription-based financial commentary? (Felix Salmon)
Taking a look at add-on programs that make using Twitter easier. (WSJ)
This post is by Mark Dow
DXY, a dollar index, looks like it has started to break down. At my firm, Pharo, we have been whispering on the trading desk over the last two days that this was looking increasingly likely. The implications are positive for risky assets. Markets play a lot of tricks on investors, and you can’t be too certain of anything in times as unprecedented as these, but, to us, it looks like the short dollar trade is “on”.
Is there a fundamental reason for this? Not clear. However, I am pretty confident that if the dollar continues to sell off the way it has started to overnight and this morning, and Treasuries continue to weaken the way they have started to, the stories of debasing the currency and Chinese diversification and the like will bob right back up to the surface. So, there will at least be a fundamental ‘story’ behind it.
Personally, I always find it hard to put too much faith in these predominately bearish dollar stories when risky assets are doing well. And, almost inevitably, risky assets do well when the dollar sells off. The correlation between the dollar and risky assets continues to be very high. Here is a correlation matrix of some proxies, using daily observations over the past year.
In the first row and column of the table you’ll see DXY, the dollar index comprising a handful of G10 currencies. The other rows represent various and sundry risky assets—mostly EM currencies, the S&P, and EEM, the ETF for emerging market equities. CCN+ is the 12 month forward for the Chinese Rinminbi, since the forward moves much more in response to market impulses than does the spot rate, which, as all of you know, is tightly managed.
For the dollar to be negatively correlated to risky assets, DXY should be positively correlated the CCN+, negatively related to SPX, AUD (since the Australian dollar is quoted in terms of dollars per Aussie dollar), and EEM. DXY should be positively correlated to TRY (Turkish Lira), BRL (Brazilian Real), and JPY (Japanese Yen).
You’ll notice that all of the correlations have the expected sign with the exception of JPY. This is due to the residual influence of the carry trade and deleveraging process. Since the yen was the other heavily borrowed currency during the levering up phase that led to the crisis (though nowhere near as abused as the dollar in this regard), the yen is the only currency apart from the dollar that is regularly negatively correlated to risky assets. It is also worth pointing out that the yen is a significant component of DXY, and, were it not there the correlations between DXY and these assets would even be meaningfully stronger.
Why is the correlation high? The simple, stylized answer is that most investment funds, irrespective of where they are domiciled, are denominated in dollars. This will change over time, and will contribute to the unwind of the dollar overhang that I wrote about here last week, but until it does, when investors reduce risk they buy dollars and “bring their assets home”, and when they increase risk they sell dollars and put their money back to work across the globe. There is more to it than that of course, but, over short spans, this is the main driver.
Okay. So, where does the dollar go? The market intelligence that we have put together here at Pharo tells us that market positioning—especially amongst large hedge funds—is light. The choppy markets frustrated a lot of investors, and there is very little belief in any positive economic scenario from here (true or not, this is the consensus view). In response, hedge funds reduced their longs, cut their shorts and headed for the beach, protecting the gains that they have had this year. Prop desks on the street are also protective of the profits they have generated so far this year. After an experience like last year, people really seem afraid of “doing something stupid”. The implication here is that if markets do move up, cell phones on the beach will ring and performance anxiety will start. Traders will chase. If, by any set of miracles, the fiscal stimulus or whatever starts to throw off better-than-expected news, traders would catch themselves really wrong footed, and things could get ‘ugly’ to the upside. In short, people would be much more surprised with good news than bad at this juncture. This would lead the DXY meaningfully lower, probably back to the lows of last year.
This Rachel Ziemba, filling in for Brad Setser. I’m having technical upload issues so will add charts later but for now some thoughts on reserves
Chinese reserves data released today seem to be one more sign that the Chinese stimulus might be working a bit too well. China’s reserves stood at $2.13 trillion up from $1.95 trillion at the end of March 2009. Although reserve accumulation was likely lower than the headline $178 billion, it implies that hot money is back in China. Adjusting for valuation, Chinese reserve growth was likely about $140 billion, much higher $60-70 billion of China’s trade surplus, FDI and interest income in this period. This accumulation also suggests that China continues to have a hard time diversifying its holdings away from the U.S. dollar.
Adjusting for valuation – the changes in value of the non-dollar holdings in China’s reserves — would imply reserve growth of around $135-140 billion. This accumulation rivals that of Q2 and Q3 2008 for the highest quarterly level.
It is one indicator that suggests that parts of China’s economy may be overheating as China tries all measures to stoke growth. It seems well in line with almost 40% y/y urban fixed investment in May 2009, and loan growth equivalent to 25% of 2008 GDP. However, it just underscores some of the difficulties in both stoking growth and avoiding future distortions.
China’s rapid reserve growth is but one of many indicators that might be worrying monetary policy makers. While consumer prices are still falling on a y/y basis, as companies can not pass on higher costs to consumers, the current lending growth and money supply growth could lead to inflationary pressures ahead. China is again trying to ease and tighten its monetary policy at the same time. It recently began issuing sterilization bills again to try to mop up the liquidity generated by buying the foreign exchange. And investors anxious to get a part of the new IPOs and worried about inflation have been reluctant to buy some recent low-yielding bond issues. Despite the risk of overheating, other parts of China’s economy continue to be weak, suggesting that tightening could be politically difficult especially if it contributes to asset market correction
The potential risks stemming from the Chinese monetary (mostly lending) and fiscal stimulus is one of the reasons that we at RGE are still somewhat cautious about the mid-term outlook for Chinese growth (as summarized in this excerpt today). There is a risk that China might be forced to use rather blunt policy measures to try to cool the overheating in some parts of the economy and, especially, its asset markets before the real economy gets on to a sustainable growth path. Or, they might not reign in the spending and it could contribute to asset bubbles and inflation that could lead to a double-dip, if as RGE fears, the U.S. and global recovery is sluggish.
But back to the reserves. Given the size of China’s reserve growth in Q2 — in the face of a shrinking trade surplus and lower foreign direct investment than in 2008 — the country is likely experiencing short term capital inflows “hot money” again. Economists tend to sum the trade surplus (the largest component of the current account) and FDI. What is unexplained by these inflows is often deemed to be hot money - short-term capital inflows. China’s trade surplus fell to $35 billion in Q2, about half that of Q1. FDI was about $21 billion taking the total to $55 billion.
Income on China’s past investments could explain part of the increase. Given the stock of China’s assets, even low yielding assets could garner a significant absolute figure, but it seems insufficient to make up the difference. Moreover, despite the mid-Q2 increase in bond yields, income on bonds remains relatively low. China’s stock of equities likely saw a bounce from Q1 levels. Yet, it is thought that China does not mark its portfolio to market. Moreover, much of the $100 billion in U.S. equities China holds were acquired between June 2007 and June 2008.
Remittances also might account for another part. These are only reported with a significant lag making comparability difficult. However, given the scale of Chinese reserve growth and adding up all the “explained capital inflows”, it seems likely that China has received hot money inflows of around $60-$70 billion. A reversal from the approximately $70 billion in outflows in Q1!
Unlike many other emerging economies, China remains quite closed to foreign equity investment. Thus, it seems likely that Chinese (including Hong Kong-based Chinese) may be trying to get money back into China again. Foreign investors may be contributing to the property market revival. Although currency appreciation is not expected in the short term given weak exports, consensus expects a stronger RMB over the course of the next few years. 12 month non-deliverable forwards, albeit not necessarily the best indicator of future levels, are barely pricing in an increase. However, there is general agreement that the RMB will have to appreciate.
In the short term this means China’s reserve diversification may have stalled. By putting pressure on the U.S. dollar, Chinese rhetoric about moving away from the U.S. dollar as a reserve currency earlier this year might have added to pressure on the renminbi and actually delayed the Chinese diversification path. China doesn’t release the currency composition of its reserves, but the dollar is thought to make up around 65% of the portfolio. That share could actually have increased slightly in Q2.
Euro assets make up most of the rest, along with a small amount of pound sterling, yen, and likely even a small amount of Canadian and Australian dollars. China has also increased its gold holdings. Despite the increase, gold makes up a less-than 2% share in Chinese reserves, much smaller than its share in U.S. or European reserves.
The U.S. data reflects the fact that China has yet to diversify much from the dollar. In fact as Brad Setser has noted, in Q1, China’s holdings of U.S. dollar assets as reported by the U.S. Treasury rose more than China’s reserves. One explanation - China was shifting within its dollar assets and asset managers, with the net result that more of its assets were captured in the U.S. data. But the data suggests China is still adding to dollar assets. Overall, China increased its short-term holdings immensely at the end of 2008 and early 2009. However, as of March and April it was paring back on its holdings of T-bills and increasing its holdings of U.S. treasuries.
The trend may still be visible in the May data which should be released at the end of this week. The scope of reserve accumulation suggests that, for now at least, China is still buying U.S. assets and helping meet funding needs. In the longer term, much will depend on China’s willingness for a stronger currency.
Given these trends, it may not be surprising that Chinese statements on new reserve currencies grew somewhat quieter in early May. Given the scope of capital inflows, these diversification statements may have seemed, as analysts for the Bank of New York have noted, to be counterproductive.
Given the increase in China’s reserve holdings, perhaps it is no surprise the Chinese investment corporation (CIC) is again becoming active, restarting its investment program. In recent weeks, the CIC announced plans to increase its stake in Morgan Stanley to avoid dilution, took a 17% stake in Canadian metals producer Teck Cominco, and announced a board of economic advisors. Further investments may follow as China continues to try to diversify its holdings.
Real diversification and liberalization of the capital account might be a longer-time in coming. Over time, some of the new capital management regulations – allowing companies to keep more of their foreign funds abroad, to use them to fund subsidiaries – might reduce inflows and funds purchased by the central bank.
So reserve accumulation is back. China is not the only country that added to its reserves again last quarter. Setting China and its estimated $140 billion in reserve growth aside, a group of over 30 countries that RGE tracks reported a valuation adjusted a net increase in reserves of about $40 billion. While not all of the countries have yet reported their June statistics, Q2 2009 is on track to be the first quarter in a year with reserve accumulation. The stocks of global reserves, are rising back towards $7 trillion again.
The pace of accumulation has slowed but the accumulators are the usual suspects –emerging economy exporters wary of currency appreciation. Many experienced sharp inflows into equity, bond and FX markets in the liquidity-fuelled rally in April, May, and early June. Russia, South Korea, Hong Kong and Taiwan account for much of the accumulation. A renewed flight from the U.S. dollar, expect these central banks to resume buying.
While some countries – like Russia -may have managed to slightly pare their dollar share in the face of capital outflows last year, the dollar still dominates reserve portfolios, particularly in Asia and the GCC. The amount of dollar liabilities in some emerging markets contributes to the need for U.S. dollars. Europe’s near abroad is similarly more partial to the euro. However, there continue to be obstacles to the euro as a reserve asset, including a fragmentation of the bond market — and the last thing European officials want is a stronger euro.
All this means Chinese reserve diversification is likely to be happening only at the margin and China (and other central banks) are likely buying U.S. assets
If deflation's still a threat, it wasn't obvious in today's update of consumer prices for June.
The CPI jumped 0.7% last month, the government reports. That's the highest since July 2008, which also posted a 0.7% rise.
Much of the gain in CPI last month came from energy. Nonetheless, core-CPI (excluding food and energy prices) still rose by 0.2%. So far this year, core CPI is up every month. In addition, core CPI's three-month annual rate is now running at 2.4% through June, or slightly above the Federal Reserve's long-term top-end target for core inflation. Another intriguing statistic is that while consumer prices overall have fallen 1.4%, based on headline CPI, core inflation is up 1.7%.
What does this tell us? That inflation, while still quite subdued, isn't dead as a threat in the medium-to-long-term horizon. No, there's nothing in today's report that tells us that inflation's about to return as a material hazard. There's still plenty of deflationary/disinflationary pressures bubbling to keep a lid on prices overall for the time being. But today's CPI report reminds that the potential for trouble down the road is still there.
Advent International has begin marketing its fifth fund to invest in Latin American companies. The effort, called Advent Latin America Private Equity Fund V (LAPEF V), has closed on $70 million to date, according to a regulatory filing. No target capitalization was disclosed.
Advent International’s prior Latin America fund closed on $1.3 billion in commitments in 2007, topping its target by 30 percent. It also was the largest private equity fund ever raised for investment in Latin America, the company said at the time.
The fundraising process may take a bit more elbow grease this time around. On top of the already-difficult fundraising environment, a first half report for 2009 show M&A in Latin America has taken a hit comparable to the developed markets. Deal volume was down by 36% compared with the first half of last year with a 45% drop in value, according to news service mergermarket. However, the report shows a glimpse of recovery for M&A in Latin America: second quarter numbers saw an 82% jump in deal value from the first quarter, while volume remained steady.
Prior to Advent International’s successful fourth fundraise, the firm gathered $375 million in 2005 and $265 million in 2002 for LAPEF III and LAPEF II, respectively.
Advent International has been hard at work investing that fourth fund in Mexican, Brazilian, and Argentinean companies, signing at least eight deals since closing the fund in July 2007. As recent as May of this year, the fund acquired a 30% stake in CETIP S.A., a depository for fixed-income securities and over the counter derivatives. In September of last year the fund announced a trio of deals: Frango Assago, a highway restaurant chain in Brazil, Quero Quero, a Brazilian home improvement retail chain, and Aerodom, an airport operator based in Dominican Republic. The firm did not respond to a request for comment.
See the rest of the mergermarket report on Latin American M&A for the first half of the year below:
Fedex options volume running twice normal levels this morning with shares up 2% near 56.66 and premium buyers dominating the flow. Just after 10:30 a buyer paid 1.425 for 1000 August 60 calls, followed several minutes later buy a buyer of 1000 Oct 60 Puts for 6.80.
....If you are interested in more info like this, check out WhatsTrading.com
Toward the end of last week, I raised the possibility that we might ultimately hold the May/June lows, which could lead to a bounce back into that long-term trading range. When Monday's weakness could not take out the prior week's lows and we held strength after weakness in Asia, that trading range scenario gained credibility.
Interestingly, however, my conjectures were generally met with a near indignant response from traders who emailed. "How could we go higher when the economy is so weak?" was a common response. The key to the replies, however, was the emotional tone of indignation--almost as if I had insulted their family members.
Those traders had a *need* to believe in a bearish thesis; their beliefs were not grounded in how the market was actually trading. This dynamic is not unique to bears; I found similar indignation when I posted an article to a website in early 2000 comparing the stock market to the exhausted 4 AM dancers in Ibiza. I received many defensive replies, indicating that I simply did not understand the new market paradigm.
The economy may indeed be weak and stocks may ultimately reach new bear market lows. What I know is that the market is not trading that outlook right here and now. As long as more volume is being transacted at the market's offer price and more stocks are ticking up than down, I want to participate in that demand/supply imbalance.
It's vitally important that the time horizon of your analyses fit the time horizon of your trading and investing. Mismatches will take you out of good investments on short-term weakness, and they will keep you out of short-term rallies on longer-term pessimism.
Even though the Nasdaq is trading above its mid May levels, the Nasdaq Summation Index (green line) is trending lower. This breadth indicator suggests that a "stealth" correction is underway within the Nasdaq. In other words, stocks within the index are showing some weakness, but the index itself has yet to buckle. You can click this chart to see the details.