There is a lead-lag relationship between the WTI and RBOB curves, but it is obscured by the rolldown, seasonal effects, etc. Statistical tests have a hard time detecting this lead-lag, because they look at error-correction patterns between pairs of points. Once we visualize the dynamics between the two curves, it becomes apparent that the lead-lag exists. That is, a lead-lag between curves, rather than between points.

A Big Data solution is to visualize all of these interrelations. Sometimes visualizing a problem can be more insightful than applying fancy mathematical models.

2011

Example of actual trades from a High Frequency strategy.

2011

Far from being an exception, liquidity crises (such as the 'flash crash') are becoming the norm. Hundreds of times over the last 12 months, financial products have experienced extreme moves as a result of the new market microstructure trends. On August 4, 2011, market makers supported E-mini S&P500 Futures prices for over 20 hours, despite of persistent flow toxicity. As soon as they gave in, an almost 5% selloff unfolded.

2011

E-Mini S&P500 Futures intraday returns with readings of order flow toxicity during the 'flash crash' of May 6th 2010.

In early May 2011, the CFTC reported the largest long speculative position among crude traders in history, who thought that energy prices would rump up, fueled by the violence sweeping through North Africa and the Middle East. Some of these traders decided to take profits on May 5th 2011. The unwinding of such massive positions led them to seek liquidity from uninformed traders. But as these realized that the selling pressure was persistent, they started to withdraw, which in turn increased the concentration of toxic flow in the overall volume. This video shows that by 9.53am CDF(VPIN) crossed the 0.9 threshold, remaining there for the rest of the day. During those few hours, WTI Crude Futures lost over 8%, well in excess of the 'flash crash' loss one year minus a day earlier.

At the end of April 2011, an agricultural-information site owned by the China Meteorological Administration named XN121.com forecasted that rains across northern China would help the planting of corn by boosting soil moisture. About 10 millimeters to 50 millimeters were expected to fall in the Northeast's top corn-growing regions the following day. CDF(VPIN) crossed the 0.9 threshold on April 26th 2011 at 11.44am, and would remain in that area until April 28th 2011 at 12.23am. Corn Futures lost over 6% of its value as a result of that toxic flow.

On October 8th 2010 market chatter speculated that further Fed stimulus would be needed. Buying pressure started at around 9am, and by 9.41am CDF(VPIN) had surpassed the 0.9 threshold, which would not touch down until 10 hours later. During that period, Silver Futures rallied 3.5%.

Treasuries fell on February 2nd 2011, pushing the 10-year note yield to the highest in nine months, after the U.S. unemployment rate unexpectedly dropped to the lowest level since April 2009, fueling speculation the labor market would improve. U.S. 30-year bond yields also reached a nine-month high as Labor Department data showed the jobless rate fell to 9 percent. Another report showed gains in service industries. The Federal Reserve bought $7.27 billion of Treasuries, less than average, as part of a stimulus program. Consequently, this video shows that order flow toxicity levels reached the 0.9 CDF(VPIN) threshold at 12.42pm, and then remained at elevated values until February 7th 2011 at 8.30am. During that period, T-Notes Futures lost over 1.2% in value.

May 20th 2010 is remembered for a sudden reduction in the number of wagers by hedge funds for a decline in the Euro. CFTC data showed speculators holding Euro bearish bets for 107,143 contracts more than those bullish, down from a record 113,890 a week earlier. The toxicity generated by the continuation of that flow can be appreciated in this video. CDF(VPIN) crossed the 0.9 threshold at 10.24am, and remained over that level for the rest of the session. Two and a half hours later began a massive rally that would take the Euro/Dollar Futures up to 3% higher.