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    What's hot and what's not

    Needs no comments, chart speaks for itself...just note Bitcoin can't fit the chart.

    What's hot and what's not
    Source: DBK

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    Pre Turkey vol puke completed

    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.

    Pre Turkey vol puke completed
    Source: Refinitiv
    Operation Twist here we come

    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."

    Operation Twist here we come
    Source: Nordea
    Big "not" top?

    Fed is not tightening, most stocks not in bull market (catch up?), 65% of MSCI stocks are still in bear market (20% below their ATHs), MSCI equal weighted has done very little since 2007 top

    Big "not" top?
    Source: BofA
    Fed BS and M2

    Everything these days is chasing...

    Fed BS and M2
    Source: confoundedinterest
    Divvies

    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

    Divvies
    Source: J.P. Morgan Quantitative and Derivatives Strategy
    Are you late to the small caps party?

    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.

    Are you late to the small caps party?
    Source: BofA
    Are you late to the small caps party?
    Source: Refinitiv
    Facebook top call buy, Activision top put sell at JPM

    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.

    Facebook top call buy, Activision top put sell at JPM
    Source: Refinitiv
    Facebook top call buy, Activision top put sell at JPM
    Source: Refinitiv
    At least some things are normal - VIX trading below VXEEM

    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.

    At least some things are normal - VIX trading below VXEEM
    Source: Refinitiv
    The Roaring 20´s

    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 Roaring 20´s
    Source: Refinitiv
    Almost 100% that 25m Americans are vaccinated by end Q1...

    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%

    Almost 100% that 25m Americans are vaccinated by end Q1...
    Source: Good Judgement project
    OIL - time to give them some oil_

    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...

    OIL - time to give them some oil_
    Source: MPAS
    OIL - time to give them some oil_
    Source: MPAS
    Greed is good...?

    Extreme greed getting very extreme...

    Greed is good...?
    Source: CNN
    The soon-to-be $200bn gaming market

    The global gaming industry is $175 bn (2020E) and should grow at a HSD CAGR through 2023. Global video games market by platform ($, bn)

    The soon-to-be $200bn gaming market
    Source: Newzoo
    Be fearful when others are...

    Put call ratio "unstoppable" to the downside.

    Be fearful when others are...
    Source: Refinitiv
    What if Santa comes to chase tech?

    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:

    Dare not to say it, but is Apple putting in a hanging man here...the inverse to the hammer candle on March 23?

    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.

    What if Santa comes to chase tech?
    Source: Refinitiv
    What if Santa comes to chase tech?
    Source: Refinitiv
    The Office

    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?

     

    The Office
    Source: MS financial specialist
    Vaccines and reopenings, but are European banks still stuck in "structural" yields problems?

    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....

    Vaccines and reopenings, but are European banks still stuck in "structural" yields problems?
    Source: Refinitiv
    People discovering somebody holds a lot of Bitcoins in their "wallets"?

    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...

    People discovering somebody holds a lot of Bitcoins in their "wallets"?
    Source: Refinitiv
    People discovering somebody holds a lot of Bitcoins in their "wallets"?
    Source: Refinitiv
    Do not buy protection when you must, buy it when you can...

    ...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".

    Do not buy protection when you must, buy it when you can...
    Source: Refinitiv
    European credit protection has not been this "hated" since pre the Corona crash

    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.

    European credit protection has not been this "hated" since pre the Corona crash
    Source: Refinitiv
    Close up of how some are crushing Corona...while others are not...

    Big changes in lower cases for Spain, France, Switzerland, Czech Republic, while US still not under control...and their super spreader event is just starting (more on that topichereandhere).

    Second chart shows changes in fatalities, still not a great trend for a lot of countries.

    Close up of how some are crushing Corona...while others are not...
    Source: Nordea
    Close up of how some are crushing Corona...while others are not...
    Source: Nordea
    Some EU countries really crushing it on COVID now

    Spain: November surge almost totally reversed. Hospitalizations coming down too.

    France: cases coming down hard.

    Italy: clearly passed the peak in cases.

    Some EU countries really crushing it on COVID now
    Source: Pantheon
    Some EU countries really crushing it on COVID now
    Source: Pantheon
    Some EU countries really crushing it on COVID now
    Source: Pantheon
    Remember the world's biggest company?

    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?

    Remember the world's biggest company?
    Source: Refinitiv
    How do you trade the super spreader event starting today (2)?

    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).

    SPY term structure has crashed
    How do you trade the super spreader event starting today (2)?
    Source: TME
    VIX
    How do you trade the super spreader event starting today (2)?
    Source: Refinitiv
    How do you trade the super spreader event starting today (1)?

    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).

    How do you trade the super spreader event starting today (1)?
    Source: Refinitiv
    How do you trade the super spreader event starting today (1)?
    Source: Refinitiv