Here Is The "YIKES" Scenario For Stocks

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by Tyler Durden
Thursday, Jul 21, 2022 - 03:45 PM

Earlier today Goldman trader Rich Privorotsky confirmed something we said over the weekend, namely that most Goldman clients "are hating this rally." Well, just a few hours later, Nomura's Charlie McElligott made the continuation of this most hated rally the centerpiece of his daily note, writing that his focus "is a scenario in the near-term where this US Equities squeeze could further accelerate into next week and “drag in” the folks who’ve been bearish and expecting this qtr’s earnings to be the one that shows the damage inflicted from tighter FCI…but in fact, might not yet be the broad case."

This, McElligott adds pointing out the obvious: the risk over the near term is a "further pile-on to the crowd who has expected another surge lower in stocks, instead squeezing their shorts and accelerating the enormous Systematic buying already going through as CTAs cover (and risk flipping “Long” in US up another 5-7% from here), while knowing in the background that Vol Control will turn a mechanical buyer thereafter too, as a number of profile Vol outlier days from late Apr / early May drop out of the 3m realized vol window and merit reallocation (buy) flows."

As a reminder, this website first covered the massive systematic bid on deck two days ago when we noted that stocks storm higher as "Systematic Selling Turns Into A Tidal Wave Of $21BN In Daily Buying." The stock surge that followed should thus not be a surprise to regular readers.