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"It's Not A Risk-On Rally, This Is The Biggest Short Squeeze In Years" Says Bank Of America

Tyler Durden's picture




 

Several days ago, we pointed out a startling fact: short interest in the NYSE had risen to match the record level seen just before the collapse of Lehman!

We said that just as likely presaging another major leg down in equities, this move may simply mean the following: "a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs."

While a central bank did not directly intervene, it did so indirectly when the September payrolls was a complete disaster, slamming any possibility of a rate hike in 2015, largely confirmed by yesterday's FOMC minutes which showed that the "no hike" decision wasn't close at all, and that as we first presented, a rate hike is now mid-2016's business, if ever.

Today, we got confirmation that what the rally of the past week has been all about is precisely that: a massive short-covering squeeze, when Bank of America's Mike Hartnett looked at the latest weekly fund flow data and noted a "monster $53bn MMF inflows vs redemptions from equity ($4.3bn) & fixed income funds ($2.4bn)...rising cash levels indicate big risk rally (from intraday lows last week SPX +7.7%, EEM +13.5%, HYG +4.2%) driven primarily by short-covering rather than fresh risk-on."

Here is the asset class flow breakdown using EPFR data;

  • Equities: $4.3bn outflows (3 straight weeks) (almost all via ETFs)
  • Bonds: $2.4bn outflows (outflows in 8 out of past 9 weeks)
  • Money-markets: huge $53bn inflows (largest in 2 years)
  • Precious Metals: small outflows ($0.2bn)

So now that we know what is causing the ongoing rampage, courtesy of a "green light" from the Fed, here is how the rest of the fund flows look like.

  • Credit carnage: more pain in HY/IG/EM with 4th consecutive week of IG outflows, 10 out of 11 weeks of HY outflow, 11th consecutive week of EM outflow = worst stretch for credit in more than 2 years (Chart 2). But daily data show inflows Wednesday to both IG & HY for first time in 11/12 days so credit redemption shock easing.

 

  • Cracks in “Crowded Longs”: Japan funds see largest weekly outflows ($2.0bn) since Nov’14; Healthcare funds see outflows in 5 out of past 7 weeks, worst stretch since Jun’14; watch October FMS (next Tuesday) for positioning unwind in other "crowded trades" (EU, Tech, Discretionary) or first UW in stocks since Jul’12 to suggest unwind mostly over.
  • Weekly inflows to energy funds; this corroborates recent CFTC longs to Crude (Chart 1); in addition, staunching of EM equity outflows (smallest since July) illustrates that weak US payroll / $-weakness was the best news for EM/commodities/resources complex; also indicates crucial that Fed does not rally US$ in coming months.

 

Finally, focusing only on the various subseectors within equities:

  • Japan cracks: $2.0bn outflows (biggest outflows since Nov’14)
  • Worst is over for EM: small $0.6bn outflows (outflows in 13 straight weeks but pace of outflows slowing)
  • Europe defiant: $2.0bn inflows (inflows in 19 out of past 21 weeks)
  • US: $5.0bn outflows (outflows from both ETFs and mutual funds)
  • By sector, healthcare funds see $0.9bn outflows (largest in 6 weeks); conversely, energy funds see $0.4bn inflows

How long will the short squeeze continue? It may well last and even overtake the all time S&P high, although keep an eye on an update from JPM's head quant Kolanovic: after once again correctly calling the inflection point just before the massive equity rally on September 24, the time may have come for the program traders to take some substantial profits.

 

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Fri, 10/09/2015 - 08:05 | 6648223 ZippyBananaPants
ZippyBananaPants's picture

So we are going down?

Fri, 10/09/2015 - 08:12 | 6648230 Groundhog Day
Groundhog Day's picture

In an attempt to squeeze the shorts they are actually letting longs get out at better pricing.  Idiots

Fri, 10/09/2015 - 08:44 | 6648310 SheepDog-One
SheepDog-One's picture

No matter what happens, these genius idiot always figure out some way to make things look good and come out of the shitter smelling like roses.

Fri, 10/09/2015 - 09:34 | 6648523 Save_America1st
Save_America1st's picture

serious question to anyone who can answer:

 

Who or what are buying in large quantity anymore at this point?????  Is it mainly algo-bots, free corporate buy-backs, central banks, and fucked up retirement fund managers?????

Fri, 10/09/2015 - 08:15 | 6648238 PirateOfBaltimore
PirateOfBaltimore's picture

Nope, only gold will.  Duh. NY just opened.

Fri, 10/09/2015 - 08:30 | 6648269 VinceFostersGhost
VinceFostersGhost's picture

 

 

NY just opened.

 

I would have waited 5 minutes.....but that's just me.

Fri, 10/09/2015 - 08:18 | 6648246 Neil Patrick Harris
Neil Patrick Harris's picture

We're only going up because technically we have to. If I were a fund manager, I'd be wringing my hands buying up stocks and loaning them for a piece of that juicy juicy interests.

Fri, 10/09/2015 - 09:22 | 6648466 NoPension
NoPension's picture

This market reminds me of the article I read about Draft Kings.
Millions pay to play. Most score a little here and there, but mostly just pay. A few at the top, a very few, make a steady haul. And one ore two are getting rich.
Now, it all stops when the gov calls it what it is, gambling. Only the government is allowed to make a buck off gambling.
Or, the millions wake up, and realize they are being fleeced. And that won't happen, because they are all shooting for that big win.

That is our market, in a nutshell. It is not for raising productive capital to fund a business. It is just a big Casino. Manipulated by the operators, working to fleece just enough over time to make a huge income. Depends on the millions of rubes " investing" their life savings. And the government is in on it, by ruining the the money market with ZIRP.

Fri, 10/09/2015 - 09:10 | 6648262 Sudden Debt
Sudden Debt's picture

Yes we're going down but not before januari.

This has been one of the biggest scams of the decade whe a lot of crooks have lured unknowing investors into shorting this market with the promise of wealth.

The fundamentals just where not in place to keep shorting.

A 20% drop was predicet, it happened and then people started flooding in to buy their puts at the top.

Most are now so far out of the money that they don't have any options left but it's going to get a lot worse in the next 2 months.

And when the market recovered in januari, they'll call for a new all time high and people who went short now will then go long.

And then it will crash.

People are sheep. They don't think for themselves and follow the crowd.

Ever shorter believed he was the smartest and he beat the  rowd not knowing he was part of the crowd.

If you went short you are a sheep. A dumbed down sheep. And off course most won't be able to handle that and let their positions expire out of the money wondering what happened. Again. 

And there's plenty over here also! Just look at the profiles that keep posting the same onelines over and over again about the comming crash! 

And remember! 70% of those posts are not comming from people but from bots. And that's not being paranoid, that's a fact. 

Honestly, if you're caught short now you're not in the camp of smart people and you've had it comming.

No pittty from my side.

And don't believe the youtube guys with their predictions. If they knew what is happening, they'd be so rich they wouldn't need to beg you to thumb up their video for that penny they get from youtube.

This shortsqueeze was the most predictable outcome of the decade.

 

Fri, 10/09/2015 - 09:33 | 6648526 abyssinian
abyssinian's picture

I stop reading after januari

Fri, 10/09/2015 - 09:43 | 6648567 Sudden Debt
Sudden Debt's picture

I probably should have used a picture of a monkey playing with a kitten to keep you interested :)

Fri, 10/09/2015 - 08:13 | 6648232 Trips Trading
Trips Trading's picture

I think so, yes. We're close now. 

According to my research, markets move in cycles, of which the table of 7 days (5 trading days) plays an important role. For example, when the 21, 35, 42, 63 day cycle line up, it’s Time to get ready for a change in trend (S&P500).

 

http://tripstrading.com/2015/10/09/sp500-how-cycles-take-their-time/

 

Today, OCT 8,  points at a 7, 21, 42, 119 and 154 day cycle (TripsTrading Cycle Model, TTCM).

 

Tomorrow and Saturday represent a Bradley Model Date, OCT 9 and 10. According to the Bradley Model: October 9-10 – On these two Days there are very strong turns in both the Middle Terms and Declinations, and this could result in an especially strong turn.

 

If the total cycle lasts 63 days, the decline will last till OCT 26. The 1850 -30 Price Target is based on the Negative Reversal of SEP 30.

 

So the cycles seem lined up to change the short term trend.

Fri, 10/09/2015 - 08:22 | 6648255 VinceFostersGhost
VinceFostersGhost's picture

 

 

Pace yourself amigo.

Fri, 10/09/2015 - 08:49 | 6648337 SheepDog-One
SheepDog-One's picture

Watch out though, these maniacal financial terrorists can do whatever they want, and do it at high speed.

Fri, 10/09/2015 - 09:42 | 6648555 Sudden Debt
Sudden Debt's picture

Do you know how many traders got rich trading purely on models?

About zero.

Fri, 10/09/2015 - 08:13 | 6648233 yogibear
yogibear's picture

Federal Reserve wants a dollar free-fall?

Seem to be hoping for it to happen. Since inflation isn't counted anymore only the small people would be hurting.

Fri, 10/09/2015 - 08:14 | 6648236 Allen_H
Allen_H's picture

Fantasy economics. At least my beer is real.

Fri, 10/09/2015 - 08:15 | 6648240 illyia
illyia's picture

Nice job putting it all together.

Thanks.

Fri, 10/09/2015 - 08:16 | 6648243 hawk nation
hawk nation's picture

The fed doesnt need a rate high to preserve confidence in the dollar when they have the largest military in the world to make sure noone opposes them

Fri, 10/09/2015 - 10:31 | 6648774 markar
markar's picture

that paradigm is in serious jeopardy with the recent events in Syria.

Fri, 10/09/2015 - 11:18 | 6648975 Crocodile
Crocodile's picture

Praise the Lord; hope it goes well for everyone.

Fri, 10/09/2015 - 08:19 | 6648248 praps
praps's picture

BoA trying to sucker in all the retail punters.

Fri, 10/09/2015 - 08:29 | 6648259 NoPension
NoPension's picture

An observation.
We are in an election cycle. Usually, " it's the economy, stupid" . Who, in power, or vying for power, is talking about the economy?

I look at the fundamentals, as I understand them, and don't see a path to prosperity for a large chunk of the population. Not as I have always understood it. A person working, providing value. At least inputting to the system, enough value to cover his existance. So much. So,so much of the cost of the current population depends on government...... .gov pay, welfare, corp. welfare, military industial. Where is the profit? Where is the created value that the government uses to cover these expenses.
They way it's set up NOW, you would think communism or Facism works.

Edit. We know, it can't last. Fundamentally, it has to crumble. But when? How? It keeps going. It's a fucking miracle. And do we just succumb, and get in line? Because they can keep it going seemingly for ever? Or prepare, and be ready for the transition? And it paralyzes you. It you are an idiot, it's easy to not know or care. Ignorance is bliss. But if you study this, and have half a brain, it looks like anti- gravity. And logic tells you, it can't last. But, how is it? My head hurts.

Fri, 10/09/2015 - 08:28 | 6648266 Dark Daze
Dark Daze's picture

SO if there were marginal outflows in Gold last week then why did Gold finally break 1150 today? I guess someone must have changed their mind(s).

Fri, 10/09/2015 - 08:36 | 6648287 VinceFostersGhost
VinceFostersGhost's picture

 

 

then why did Gold finally break 1150 today?

 

Maybe it was just to screw with us.

Fri, 10/09/2015 - 10:11 | 6648692 herkomilchen
herkomilchen's picture

I hope so.  Would like to see some lower lows before the takeoff.

Fri, 10/09/2015 - 08:29 | 6648267 firstdivision
firstdivision's picture

Anyone that actually goes short this market by shorting, deserves what they get.  Keep saying not to short, but pull cash out if you want to 'short the market'.  They cannot force a squeeze if no one is positioned short the market. 

Fri, 10/09/2015 - 08:37 | 6648291 NoPension
NoPension's picture

Explain. If you go to " cash" , what does that mean?

Digits in a money market, where it ends up " parked" back in the system, by someone else?

Or a milk crate full of $100's ? Which you can't get.

Or PM's. Paper? Phys?

Fri, 10/09/2015 - 09:27 | 6648430 Exalt
Exalt's picture

Traditionally the understanding is people want to hold cash because they don't see suitable returns in the market and are becoming risk averse. In my opinion you are either risk loving, risk neutral or risk averse. So if you're seeing signals to go to cash there is only one answer. Commodities. PMs specifically. If you believe in shades of grey, sure sit in money or equivalents: a money market account, your domestic currency in a savings account or in some foreign currency you percieve to be stronger than your domestic currency. You'll be in cash, sure, but you'll be bleeding it daily. That is why commodities are favoured: no bleed.

Fri, 10/09/2015 - 09:28 | 6648495 NoPension
NoPension's picture

My understanding, per an article here, is; there is no place that holds " cash".
You may sell out, and park it in an account. But then, it's " hypothecated"?, and put back in by the entity you entrusted to hold it. Either in the market, or Treasuries, or something.
So, how are you out? Your cash is at risk, and you are just hoping the entity stays solvent, so you can get it back.

Brings to mind our friend, The Honorable Jon Corzine.

Fri, 10/09/2015 - 09:47 | 6648520 Exalt
Exalt's picture

Ok if that's the question then yes. Anything that is held in digital form is still part of the system. Cash in short term holdings will be rehypothecated and there's no guarantee you'll get your deposits back from whats left of vault cash if your concearns are realised. You could hold bank notes versus physical commodities but if you're going for cash your view is that the direction for paper currency is down. So holding bank notes or deposits is a non sequitur.

You're not out until you're out...

Fri, 10/09/2015 - 10:09 | 6648682 herkomilchen
herkomilchen's picture

Agreed too much risk to be naked shorting.  So buy calls to protect your shorts.  Or just buy puts.

Fri, 10/09/2015 - 08:29 | 6648268 buzzsaw99
buzzsaw99's picture

once again, there is no market, there is only the fed. stupid shorts were betting/guarding against zirp 4evah. fools.

Fri, 10/09/2015 - 08:35 | 6648281 madbraz
madbraz's picture

"a central bank did not directly intervene"

 

???

 

you think it is just a coincidence?  reverse repos prior to the end of Q3 were around $70 billion average per day and it magically goes to $173 billion on October 2nd from $75 billion on october 1st - the day the crazy corrupt rally begins?

 

you don't think that the NY FED, by paying dealers for the favor of renting them treasuries (to be used as rehypothecated collateral and for shorting treasuries - no need to own anything) is not a direct manipulation scheme?  or should we believe in the NY FED's claim that "no inference should be made about the monetary policy effect of these operations..." or some BS to that end

 

cmon

 

 

 

 

Fri, 10/09/2015 - 08:39 | 6648293 buzzsaw99
buzzsaw99's picture

reverse repos are moar of an eoq fed fraud-conspiracy with tbtf to cook their books in order to defeat regulations.

Fri, 10/09/2015 - 08:46 | 6648319 madbraz
madbraz's picture

that would be true for end of quarter.  if it's rolled over after the quarter end, instead of expiring, then it is used for something else.

 

 

Fri, 10/09/2015 - 08:44 | 6648309 NoWayJose
NoWayJose's picture

I see two things happening - one is that we are finally se of the big money 'guess wrong' - after years of everyone riding QE higher together. With big leverage that will mean some troubles (Glencore, DB, etc).

The other is whether this 'short reversal' is also a 'long selling opportunity' such that central banks may be intentionally reversing some big positions just so that the 'troubled' can heal a bit and get out.

Given the economic numbers, I still see plenty of room to the downside, and a fresh wave of shorts coming in.

Fri, 10/09/2015 - 08:48 | 6648326 SheepDog-One
SheepDog-One's picture

Bet it all on black! No, red! No I mean black again! Yay!

Fri, 10/09/2015 - 08:51 | 6648343 Keltner Channel Surf
Keltner Channel Surf's picture

Not sure I agree shorts were the main catalyst, think instead it was a selling vacuum of large institutions waiting to re-short at standard bounce touch-points (we're there now), combined with low-volume algorithms that relentlessly goosed us higher toward those levels after European-driven gap-opens, evidenced by a lot of mid-day horizontal yet gently upsloping afternoon action, rather than big spikes and fades that would suggest short fuel.  If we bust decisively higher above current levels, that will likely be from major covering, as I suspect large players have been carefully building shorts since Tues.

Fri, 10/09/2015 - 11:05 | 6648539 falak pema
falak pema's picture

Its now OFFICIAL :

Lady LAgarde of the IMF says that a financial crisis is now INEVItABLE as QE has not created growth, instead a debt bubble of unmanageable proportions.

Straight from the Horse's (Silly Filly's if you prefer) mouth !

http://www.theguardian.com/business/2015/oct/07/next-financial-crash-is-...

Fri, 10/09/2015 - 09:54 | 6648608 HopefulCynical
HopefulCynical's picture

Until TPTB want it to crash, it will not.

It's really just that simple.

Fri, 10/09/2015 - 10:03 | 6648649 Hohum
Hohum's picture

How about in English so the layperson can really understand what's going on?  Inflows to money markets?  From where?

Fri, 10/09/2015 - 10:16 | 6648719 Ban KKiller
Ban KKiller's picture

Bank of America, well known criminal enterprise that happens to offer checking, savings and advice to the sheeple. Don't know about you but I don't listen to criminals. Or at least I don't take their "advice". 

They are dismissing their foreclosure case against us due to judge's memorandum and order speaking to BofA submitting three different copies of the "note" and an unsigned assignment of mortgage that the notary swore to being signed. Other than that they had a good case. Ha-fucking-ha! 

I like fighting BofA. There is a reason they are selling off their servicing rights. They can't service/foreclose without using forged, fraudulent documents and the judge agreed, reluctently. They also hire "debt collectors" posing as attorneys. Or is it attorneys posing as debt collectors? Anyway their attorneys are drowning in student debt and have horrible marriages, if they are married, and they dress like dweebs. Glad they are overworked sister fuckers too. Am I petty enough? For them? Umm...no. 

Nationstar Mortgage, LLC, is down 50% since they started TRYING to mess with me. That case was dismissed too for same reasons, basically. I have been badmouthing them on the finanical sites and it is fun. Their execs are jumping ship and the insiders are selling. So fuck you Nationstar Mortgage, LLC and your hedge fund "daddy" FIG. Whose stock is shit also. Wonder why? Outflows baby! 

Fri, 10/09/2015 - 11:03 | 6648898 undercover brother
undercover brother's picture

WRONG.  This is an engineered move by the Fed to bail out certain (TBTF) highly leveraged entities whose P&L's are tied to gold and oil.  Also an attempt to bail out the entire US & Canadian tar sand and frack industry, whose debt is a massive default risk and on the verge of blowing up and taking a few banks with them.  

Fri, 10/09/2015 - 11:14 | 6648957 Crocodile
Crocodile's picture

You are partially correct in that a massive "shadow QE" is taking place to cover the derivative exposure; the problem is it is far too big and will ultimately fail unless commodities move up high and soon partly because there are other fires that are burning at the same time. 

 

The BRIICS are fully aware of what is going on and they can end this by exposing the "Emperor" without clothes, but they have nothing but time and will pick the right time.  I would assume a complete failure and isolation of the US sometime in 2017.  There are already many cracks, but these criminals are the best of the worse and so it takes time to "round them up".

Fri, 10/09/2015 - 11:03 | 6648899 undercover brother
undercover brother's picture

.

Fri, 10/09/2015 - 11:15 | 6648933 Crocodile
Crocodile's picture

It is not so much a "big squeeze" (it is and isn't) as it is that the FED/ "TPTA" (The Powers That Are) cannot allow this market to drop significantly because the next crash will amount to the "final wreck" and unveiling of the truth to the dumbest of sheep. 

 

A changing of the "guard" is at hand and it is a question of how long before the Chinese, Russian and the rest of the BRIICS nations decide to uncover the "Emperor".  I suspect that Europe will and has been preparing carefully in turning East.  Many cannot be vocal least they end up in body bags, for the USD is like "Bernie"; the appearance to be full of life and character while dead.

 

https://www.youtube.com/watch?v=ZlCADShkhjk

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