Needs no comments, chart speaks for itself...just note Bitcoin can't fit the chart.
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VIX at new post Corona lows, and MOVE pointing lower again.
Time to start thinking about those long volatility/options trades soon, but first some turkey.
Nordea's take on the Fed minutes:
"Our key take-away is that an Operation Twist is highly likely in December and that asset purchases will be kept at the same minimum tempo (in contrast to the tapering announced by BoC) – in particular since Mnuchins decision to veto against the prolongation of crisis measures has been taken after the FOMC meeting in November. We also think that the Fed intends to launch a set of guiding principles on how long the asset purchases will run for. These principles will likely be linked to PCE prices and unemployment."
On the Mnuchin vs Fed they once again remind us:
"... it can actually be seen as positive/dovish news that Mnuchin vetoed against a prolongation of the crisis measures as the Fed is now more inclined to turn more dovish on instruments that are actually put to use."
IPO mania (see previous post), M&A premium 142% vs long term average 23%, $3.2 tn raised for IG/HY, SPACs etc, US houses soaring, concentrated equity rally, greedy IG and tech inflow, chart double top, negative narratives becoming bullish narratives (blue wave is now bullish...)
Everything these days is chasing...
Over the past week, 29 companies announced new dividends in line with their previous payouts, 9 companies hiked their dividends, and there were no new cuts or suspensions
Chart: S&P 500 dividend futures term structure
Rotation bonanza or not, but the latest melt up in small caps has been extreme. Everybody trying to do the same trade in a matter of a few days does not work. Another misconception among many is that small caps space still is a laggard, which is totally wrong.
IWM was leading SPY from March lows even before this last ramp up, but people love narratives and not facts (chart 2).
Small caps is stretched here and there are definitely better alternatives than chasingex dogshere.
These are not upgrade calls as such, but fit with JPM's fundamental view and screen from low/high vol perspective. Both are obviously long trades.
TME chart comment, FB bouncing on the 100 day and the trend line since April. Activision bounced on 200 day and the longer term trend. Both fit well with a possiblesuper spreadertrade logic we outlined earlier.
This relationship got "dislocated" during the Corona panic. It took the market a long time to revert to some sort of normality when it comes to pricing risk in S&P and EM.
Longer term, VIX has traded substantially below EM vol, VXEEM, but given the "structural" shift in vols, this is not a trade we would chase at these levels.
The following you can read in economic history books about the Roaring 20´s
1. a period of economic prosperity
2. normalcy brought back to the politics of the United States.
3. Nations saw rapid industrial and economic growth, accelerated consumer demand,
4. The United States had dominance in world finance
5. The spirit of the Roaring Twenties was marked by a general feeling that everything seemed possible through modern technology
6. a surging economy created an era of mass consumerism
It is like deja vu all over again.....
Bears can hibernate for 7-8 more years
The probability that enough doses of FDA approved vaccine to inoculate 25m people are distributed in the US by 1Q21 has spiked up to 98% from its recent trough at 48%
Current vs future demand. Vaccine news is not helping current demand which remains stalled and likely to continue to underperform given recent mobility restrictions that will show in data over the next few weeks.
Chasing the rotation trade here looks a little late...
Extreme greed getting very extreme...
The global gaming industry is $175 bn (2020E) and should grow at a HSD CAGR through 2023. Global video games market by platform ($, bn)
Put call ratio "unstoppable" to the downside.
Apple, one of the biggest "squezers" earlier this summer has been extremely boring over past months.
The effect of retail and Softbank chasing upside calls, resulted in Apple volatility getting way too high during the early autumn. On Sep 1 we wrote:
we also pointed out volatility was way too rich and was a great overwriting candidate for the crowd that "must be long", but can earn yield onoverwriting.
Tech went out of fashion abruptly and has recently been replaces by the rotation chase. During this time names like Apple have consolidated, but Apple is now getting rather close to deciding whether to stay in this consolidation or break out.
Our most recent logic is that people should start chasing tech on a relative basis again. Apple could get interesting should it start breaking above the negative trend line that has been in place since Sep 1.
Note how Apple volatility has come off, offering interesting long premium plays now (opposed to early Sep). Second chart shows a simple Jan 120/130 call spread, that has a max payout of some $X the money.
Real Estate follows a risk-on / rotational playbook, as notable strength in Office, Retail, and Multi-Family comes at the expense of Data Center and Industrial operators. With Office collectively ~33% higher since a) Pfizer’s initial vaccine efficacy data was released and subsequently b) generalist interest piquing in these “untapped re-opening beneficiaries”, the most frequently asked question continues to be “where does the next catalyst stem from?”
Is it a "flash in the pan" or a taste of what is going to come?
We have not seen SX7E, get so EUphoric vs German 10 year yield in a long time.
Hated banks become "must" love banks as shorts have been chasing the sector higher. Time for a pause at least?
Watch German 10 year should it go even lower and take out pre Pfizer vaccine news levels....
As we have explained, in trading it often pays to look and trade the "derivative" or beyond the obvious trade everybody is chasing. This approach often let's you have a "cushion" and an edge, especially when the crowd "discovers" the trade.
MSTR's CEO loaded up on Bitcoins earlier this summer, but the MSTR trade did not get interesting until the stock started lagging Bitcoin in early November. As we pointed out onNov 12, MSTR was a "bitcoin arbitrage" trade.
Fast forward to today and MSTR has now beaten Bitcoin by miles since mid November, and the two are both up some 80% from early October, with MSTR +42% since mid Nov, and BTC up only 20% since then.
MSTR is now moved to inverse arbitrage watch...
...but people tend to do the inverse. OnOctober 29we once again reminded of spiking vols with "wrong" narratives, we wrote;
"Nothing new, but people tend to buy protection rather late..."
Since then we have seen an epic crash of risk premium. Equity and credit protection have both collapsed. We are approaching interesting levels to start using relatively cheap "optionality".
iTraxx main (inverted) breaking up after the big consolidation we have seen over past months. As we have pointed out since this summer, European credit protection has been rather "unstressed" vs equities that have been lagging. The most recent melt up in European equities have caught up to credit protection, but the "gap" remains rather wide still.
Spain: November surge almost totally reversed. Hospitalizations coming down too.
France: cases coming down hard.
Italy: clearly passed the peak in cases.
Time for the helicopter view as the crowd is chasing small caps.
Apple vs IWM ratio down to the trend line.
Chase Apple or small caps here?
We outlined the potential super spreader logic in the earlier post.
Another way to play a possible hiccup should the overall market get stressed is via relatively cheap volatility.
Global vols have all crashed recently, the first 7 day period post the elections was the biggest 7 day drop for VIX ever. Not only have vols crashed, but the entire term structure has steepened massively as demand for short term, hedges has imploded (recall, "bro hedges only cost money").
Nobody wants protection here, especially not short term protection. Either play a possible super spreader event with cheap short term options, or via term structure trades (long short end of the curve vs short little further out).
Thanksgiving travelling has officially started. Coming few days will be the super spreader event of the autumn. The median incubation period for COVID‐19 is four to five days, so if this proves to be a super spreader event we should know by next weekend.
Given the surge in the rotation trade where people are busy chasing laggards (these have recently turned to leaders) as the positive vaccine news and the reopening narrative, Russell has managed exploding to the upside, absolutely and relatively speaking. What if markets start refocusing on the inverse logic should we get a super spreader event, if nothing as a short term narrative?
Seasonality is very strong for NASDAQ, and the Russell vs NASDAQ ratio has turned around violently several times. Sure, the tech momentum from earlier this year is not present, but a quick relative trade could reverse abruptly.
Note how seasonality is much stronger for NASDAQ than rest of the indexes going into year end (second chart).