Bear barrage
Too many bears
The spread between AAII bulls-bears has collapsed lately. Similar "moves" in sentiment has resulted in brutal SPX bounces.
Source: Refinitiv
Keep it simple
NASDAQ bouncing on big support levels...
Source: Refinitiv
Less "freaky" VIX
The VIX inverted vs SPX gap is shrinking rapidly. Regular readers of TME are familiar with not confusing direction with pace. VIX is about pace...
Source: Refinitiv
The technical bull case setup
Against an increasingly bearish narrative around rates (10-yr at highest levels since 2007), gas prices (crude hit $95), student loans, and a potential government shutdown - all against light positioning (HF net exposure at 43%, just the 16th percentile in past 5 years) – it’s worth highlighting the technical upside risk where seasonality is supportive into year-end. The work done by Morgan Stanley QDS team shows that US and EU L/S hedge funds are typically buyers of equities in Q4. Historically, when global equities are strong from January to August, the drawdown in September/October tends to be low. This yearʼs January-August performance would imply a mild drawdown in September and October of around -5% for MSCI World. “Sep/Oct lows are typically not revisited so the asymmetry is strongly in your favor.” – (MS QDS)
Drawdown levels associated with a bounce
Current Nasdaq correction now in the ‘zone’ of recent drawdown episodes over the last 1 year.
Source: Bloomberg
Oil's overbought mania
Oil RSI is printing new recent highs, approaching the extreme levels we saw in Q1 2022. Let's see how this plays out, but overbought can stay overbought for longer than most think possible...but this one is getting rather extreme.
Source: Refinitiv
Bond convexity
Goldman's flow guru, Scott Rubner: "We have $319 Billion worth of bonds to buy in an up 2std dev tape over the next month and we have $64 Billion worth of bonds to buy in a down 2.5std dev tape over the next one month. We estimate the current CTA bond short is $263.3 Billion."
Source: GS
Feeling tight?
US financial conditions have moved substantially. The SPX is trading with a wide gap vs the FCI (inverted)...despite the latest move lower in the SPX.
Source: Bloomberg/GS
The AI race becoming weird
"...OpenAI’s Sam Altman and Jony Ive, Apple’s former head of design, who have been talking about building a new AI hardware device (Masayoshi Son of SoftBank has also been involved). Imagine how Microsoft feels about Ive and Altman building something that could eventually compete with it in a new category. Or consider how these guys must feel about potentially taking on Apple. The only logical explanation is that everyone basically views the field as wide open and in the very early days." (The Information)
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