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Explaining what is going on in a pic...
Is the (very consensus) year-end melt-up thesis running into some resistance? We are of course at the upper end of the range in S&P500 and now we are running into if not somewhat of a "supply tsunami" at least something that might act as a dampener on the rally. First, the estimates for month-end equity selling is now in the $30-40bn range, which is a lot from historical standards*. Second, ECM is really spiking - expect next 2 weeks to see a lot of follow-ons. Third, S&P500 dealers are long gamma which will create more supply to sell into eventual strength if we try to break-out. Maybe not enough to get outright bearish, but potentially at least enough to halt the rally and let the market digest for a while.
* GS has $36bn - the 4th largest monthly sell estimate on record going back to 2000 and ranks in the 96th percentile amongst all buy and sell estimates in absolute $ value
First chart shows SPX right up in the range highs.
Second chart shows SPX gamma "healthy" slightly higher.
Vols exploded to the upside yesterday across most assets. Below are charts of Amazon and Google showing just how boring both these names have been over the past months. One thing has gone to the moon, vols of both. The two tech giants are reporting earnings next week. We have no take on earnings as such, but for long only fund, overwriting some expensive options make sense given the vol levels.
Nokia was one of the "attacked" stocks yesterday. Going into the long logic people on forums pumped yesterday for Nokia is not even worth mentioning.
For now squeezing a few hedge funds has worked, but these moves are basically just a play on a broken market and many retail guys will be left with huge losses when this passes.
So for the Nokia trade now. It started going up in Europe yesterday, yes Nokia is a Finnish company, not American. The main market is Europe, not US, although there is a listed ADR on NYSE. After Europe closed, people started "chasing" Nokia in the US leg (red arrow where Europe closed in the chart). Nokia extended the move by some 75% after Europe closed, all happening in a few minutes.
So people start chasing a stock in the secondary market, Europe is the primary market for Nokia trading. Obviously there are shareholders in the US leg as well, many US based funds can only hold the ADR for example. So retail punters start chasing the relatively illiquid Nokia ADR and manage to lift it to the moon in a short time span. Obviously HFT firms trade the ADR as pure momentum trading strategies, but it does take some time before real "flow", sellers, wake up to this move. European fund managers do not look at the US ADR overly actively as their day has ended. It would take 10,15,20 minutes before they get the call from their local broker telling them Nokia is up 20, 30, 40% from the European close (markets are not efficient). Unless there are news out, beyond Redditt, some PMs start selling the share, converting them via the custodian bank later into European shares (or via prop trading firms that can facilitate the conversion, although this business, ADR "arbitrage" has faded for years).
Obviously there are some scared shorts, especially in these times, that probably started chasing the stock as well as it spiked in US trading only. You can basically call this an inverse flash crash move, triggered by retail, but is an affect of a broken market.
So what has happened?
Nokia in Europe is basically unchanged as of writing. It needs to go up by 22% from here in order to catch up to where it closed in US. It needs to gain almost 85% from here in order to reach the highs of where the ADR printed highs yesterday.
Many US retail punters will have a rude awakening when they see how much they lost in Nokia, but on the other hand, who said you should be making money not understanding what you do.
Big down day for mighty Asian tech. HSTECH -4.6%, reversing the parabolic break out attempt in a violent way. Note 50 day is still pretty far down, as well as the trend line since March. On Jan 26 we warned our readers this space was getting slightly too excited, we wrote:
"Asian tech is eating the world, but stocks here look a bit extended to put it mildly."
We had that crazy +10% move higher in Tencent on Monday that was reversed sharply, and has continued much lower. Watch Tencent, Taiwan semis, Meituan and some other closely here, as Asian mania has been early both on the way up as well as the way down.