Contrarian catalysts
What is the risk of a short squeeze now?
"Still present, but potentially delayed...A squeeze might not accelerate unless we get 1) evidence consumer spending isn’t slowing too much, 2) relatively good earnings season, 3) Fed communicating they’re on hold. Given the conditions that might have to be met, a sustained move higher in shorts seems like a greater possibility in Nov than right now" (JPM Position Intelligence)
Lowest beat level
As for earnings, we’re only ~17% of the way through results for the SPX and the beat rate is coming in at its lowest level so far in ’23. The 73% reading is still 2ppts above the LT average, and decently above the 2 Qs it broke below 70% last year. That said, stocks are getting punished. The poor tape is definitely a big contributing factor, but misses (of which there have been plenty) are being punished the hardest vs. every other quarter since 2010, averaging -3.7% 1D moves.
Source: Jefferies
Source: Jefferies
Stinky brea(d)th
The percentage of stocks above the 200 day continues crashing. So far the SPX is following...but breadth is getting a bit extreme.
Source: Tradingview
Revisions as well
Another breadth chart crashing...
Source: MS
The bid in downside protection
The 1 and 3 months 25 delta puts are trading at the richest relative levels since the debt limit "crisis" in May (GS). The crowd paying up for downside protection could be a contrarian signal.
Source: GS
Buy fear
That is basically the conclusion when it comes to put/call skew reasoning via Goldman's Marshall. " S&P 500 Average Stock normalized put-call skew has been a useful indicator for predicting forward 3-month SPX returns. When fear levels are high, driving excess demand for puts, it tends to result in higher equity returns over the subsequent three months...".The indicator suggests above average returns for the next 3 months.
Source: GS
Source: GS
The bond short...
...is huge. Trend chasers have continued pushing momentum successfully, but the exit could become very narrow should we see a reversal in bonds (more on that here).
Source: BofA
Oil - too rich
JPM's oil guru, Kaneva, writes that oil is around $7 overvalued here: "Since 1967, ex-1973 Yom Kippur War, none of the 10 major military conflicts involving Israel induced a lasting impact on oil prices. When a major oil producer has been involved in a military conflict, oil has trade up $7 - $14".
Source: JPM
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