P/L pain, CTA chasing and imploding war hedges
Wait and see over
CTAs are shocked by the latest melt up in equities land, but they have remained in wait and see mode, but UBS sees this changing: "However, the 'wait and see' mode is likely over. We anticipate significant CTAs buying over the next two weeks, buying back 50% to 60% of their shorts, ie. 50/60$bln worth of global equities". (projections on CTAs see here)
The CTA puke
Second largest drawdown in 2023 for momentum chasers...
Source: Nomura
NASDAQ - mean reversion king
NASDAQ continues the melt up move, but zoom out and you realize we lack a trend in NASDAQ. 15600 is the upper part of the range that has been in place since mid June. Playing big break out moves, both ways, has been a costly strategy.
Source: Refinitiv
Fearless tech
The VXN printing another new recent low post the brutal reset in volatilities.
Source: Refinitiv
Equities just need stabilized softness
"....for equities you probably just need to have more stability. To keep that relaxation theme going, we would ideally need to see continued signs of some softness in the data. That would help to cement the narrative that the Fed is likely to done, keep rate volatility heading lower and push people back towards equities." (Dom Wilson, GS)
P/L pain in a pic
Macro funds vs SPX weekly rolling returns needs little commenting. Good luck explaining your p/l to the boss...
Source: Nomura
"Rent" upside
Last week's rally in global assets was extreme. We couldn't agree more with Barclays' derivatives team: "With VIX having staged one of the largest drops in history, we recommend renting rather than buying further upside, and screen for stock replacement via cheap calls."
Source: Barclays
The stabilizer
Dealers are back in long gamma land where delta hedge behavior acts as a stabilizer of markets and oppresses volatility. Dealers must sell on upticks and buy on downticks. Chart two shows the distribution of the SPX gamma.
Source: GS
Source: Sptogamma
Gold downside ain't rich
Gold volatility (GVZ) continues coming down. The question is whether or not gold's latest rally is mainly a war hedge move or if gold is pricing something more "serious". With the other war hedge, oil, back in full implosion mode, we ask ourselves if gold up here is "sustainable"...Gold downside via options is not expensive (more here).
Source: Refinitiv
Source: Refinitiv
Oil - puking below the 200 day moving average
Oil is taking out the 200 day moving average today. Not overly pretty for the "war hedge" bulls.
Source: Refinitiv
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