In a world where only one 'actor' is still buying stocks, Nomura's Charlie McElligott just uttered the three most terrifying words in the world to stock market bull:
"buyback blackout begins..."
Having exposed the multitude reasons for concern below the surface of the stock market, the cross-asset strategy MD warns we have already begun to enter the buyback blackout period, with 75% of the S&P 500 "out of the market" by December 26th (with 75% to emerge on Feb 6th).
If you were wondering why Banks can’t catch a bid - they’ve been in the blackout since Dec 5th, followed by Transports Dec 13th and Household Goods Dec 14th
Next week Telcos Dec 19th, Cap Goods, Software, Media Dec 20th and Pharma Dec 21st
Following week is Semis, Autos, Healthcare, Insurance, Materials, Consumer Services Dec 26th / 27th
First week of Jan sees Durables, Energy, Tech before REITS, Utes, Diversified Fins and Retailing at mid / end Jan
And tightening financial conditions cramping credit markets is not helping...
All of which is a major problem as it leaves the rest of the markets' participants with no 'greater fools' to offload their risk to.
McElligott points out that while the trend-following CTAs have gone "max short" across global equities, they are far from any 'covering levels' to feed a short-squeeze...
Source: Nomura QIS
It's also worth noting that Nasdaq is the only developed market which remains "long" - a test and break below that 6207 level would generate approx. -$20B notional for sale...
And the options market has a big problem as the 'greeks' have gone wild recently, with aggregate S&P delta and gamma at near-record negative levels (leaving a market very vulnerable to flash-crashes or smashes)...
SPX / SPY consolidated greeks keep getting more negative with spot, EVEN WITH calls over puts
Net overall Delta is -$506.8B (a 0.4%ile level back to 2013) and front-month -$325.3B / front-week -$228.6B with modest notional bias to upside
Net Gamma -$18B per 1% move + or – (a 1.6%ile level back to 2013), net gamma -$46.5B on a 2% move—with the size strikes that matter the most being 2600 ($5.9B gamma), 2650 ($4.1B), 2500 ($3.8B) and 2550 ($3.7B) and also a bias to the upside
All of which means we are likely to see incredibly-erratic price-action into Friday’s Quad Witch expiration and horrible year-end liquidity with dealers offering little balance sheet.