{{message}}

    You need trading liquidity?

    No problem, oil has it all, liquidity and volatility.

    You need  trading liquidity?
    Thomson Reuters

    Get thefreeapp!

    Use the browser menubelowon the top rightand tap
    iOS Browser Menu Android Browser MenuAdd to Home Screen

    VIX futures spread rather unimpressed by the "happenings" today

    VIX 2 vs 8 months futures spread.

    VIX futures spread rather unimpressed by the "happenings" today
    Thomson Reuters

    That September rate cut

    That September rate cut
    UBS

    Huge crowded yields momentum trades about to panic?

    We have seen some interesting moves in US and German 10 year yields over past 24 hours. Lower yields for longer is probably the most consensus trades out there, and people have put a lot of money into that view, especially the CTA momentum guys.

    We wrote about this only a few days ago, asking us what could happen if yields reversed, even small.

    The multi billion USD CTA fund we often come back to lost 2% in their latest daily update. Majority of their YTD p/l originates from the extraordinary move in yields.

    These guys are good at "maxing" out trends, so expect the aggregate positioning in yields to get rather sweaty should the move continue.

    Chart of the fund showing the blue line which is the contributing gross returns from yields, black total, and rest is just noise.

    Huge crowded yields momentum trades about to panic?

    Unplanned outages

    Unplanned outages
    UBS

    JPM on the MOMO trade and Oil - similar to the crowded "XIV" trade that blew up

    The recent spike on Oil will just accelerate this unwind and eventually lead to a capitulation of the short value/beta trade.

    JPM on the MOMO trade and Oil - similar to the crowded "XIV" trade that blew up
    JPM

    MoMo meltdown leads to economic breakdown...?

    Mike Wilson highlights that the last two times the market has experienced a momentum breakdown this severe, it preceded or coincided with an economic recession (see below). He believes the recent breakdown in momentum signals the end of Goldilocks at best, and a recession at worst… but that both outcomes suggest the big winners this year are likely to come under further pressure. If the porridge is too cold, he believes the secular growth part of the long momentum strategy is more at risk than the defensives. He doesn’t believe momentum weakness will lead to a healthy or smooth rotation from growth to value because such a rotation will create too much portfolio destruction for most active managers and force a de-grossing of risk

    Thomson Reuters
    MoMo meltdown leads to economic breakdown...?
    Morgan Stanley

    S&P 500 average stock 1-month implied volatility is currently at 21, in its 12th percentile vs the past year

    VIX +7%, Gold vol +7%, Treasury vol +3%, Oil vol +45% but greed remains in fashion

    VIX +7%, Gold vol +7%, Treasury vol +3%, Oil vol +45% but greed remains in fashion
    CNN

    Ever since Mr Trump’s election in 2016, nervous observers have wondered how the president would behave in a real foreign policy crisis. We are about to find out.

    Good read on the oil crisis, volatile leaders and the risk of escalation via FT.

    https://www.ft.com/content/ff2696e0-d858

    TLT - parabolic is broken, but do you try em long here in case the "narrative" comes back?

    TLT - parabolic is broken, but do you try em long here in case the "narrative" comes back?
    Thomson Reuters

    largest bond ETF now trading below 50dma

    $65 billion in AUM

    trading below its 50-day moving average for the first time since Nov 2018

    Its longest uptrend in its history (205 consecutive trading days) has ended

    CTA carnage of course started way earlier - they dont wait for no stupid 50dmas to be broken....

    Bilello

    US federal debt as a percentage of GDP

    US federal debt as a percentage of GDP
    Goldman Sachs

    PUTIN PROPOSES RUSSIAN WEAPONSAND S400 FOR PURCHASE TO SAUDI ARABIA IF IT WANTS TO PROTECT ITS OIL INDUSTRY

    @FirstSquawk

    U.S. TRADE REPRESENTATIVE ROBERT LIGHTHIZER TOLD TOP BUSINESS EXECUTIVES THAT THERE IS STILL MUCH WORK TO BE DONE TO REACH A TRADE DEAL WITH CHINA

    @FirstSquawk

    We have seen big spikes in VIX without Oil volatility, OIV, moving, but we have not seen huge moves in the OIV and VIX not "catching up"

    We have seen big spikes in VIX without Oil volatility, OIV, moving, but we have not seen huge moves in the OIV and VIX not "catching up"
    Thomson Reuters

    Oil volatility index, OIV, +47%

    The Economy - demand or supply in charge, or both?

    Oil versus Copper

    The Economy - demand or supply in charge, or both?
    Thomson Reuters

    L/S HF equity beta continuing to come down

    L/S HF equity beta continuing to come down
    JPM

    European GDP growth rates

    Real GDP growth, yoy, GS economists' forecast, 2019E

    European GDP growth rates

    Could the Turkish Lira be the "cheap" bet on oil?

    Turkey has increased its oil imports big this year. Leaving politics aside, the TRY could be "affected" further by this move in oil.

    We are seeing the obvious oil related things move today, but TRY is still very calm....

    Could the Turkish Lira be the "cheap" bet on oil?
    Thomson Reuters

    Quant model chaos

    The multi billion USD CTA fund we have been coming back to over past weeks, asking ourselves how geared the CTA space is to yields, has continued to produce big negative days, down another 2.75% on the last daily update.

    P/L has gone from +30.5% YTD highs only recently to now 17.5% YTD.

    It will be an interesting read to see how the oil move affected the CTA space.

    Complex set up in oil and related here

    XLE gap above the longer term trend line, but +12% since late August.

    Complex set up in oil and related here
    Thomson Reuters

    For High Yield companies, we are very close to an earnings recession

    High-yield companies show weak bottom-line growth in 2Q, and that follows a neg earnings growth quarter

    For High Yield companies, we are very close to an earnings recession
    JPM

    Volatility indices love drones; VIX +7.6%, V2X +11.3%, OIV +28%, GVZ +4%.

    Interesting to note that despite the vol pop higher, S&P is doing very little....

    Oil - now that is a volatility pop

    Oil - now that is a volatility pop
    Thomson Reuters

      Hedge Fund nets printing new highs

      Cannot make the case of "cautious positioning" as convincingly as before....

      Hedge Fund nets printing new highs
      Goldman

      E&P vs WTI - looking to break out

      The E&P sector is looking to break out of its protracted trend channel of underperformance vs. WTI

      E&P vs WTI - looking to break out

      TLT managed attracting a lot of people that bought without much plan

      Longer term trend still lower as huge volumes change hands....

      TLT managed attracting a lot of people that bought without much plan
      Thomson Reuters

      Do not show this chart to Trump - US 10 year at 1.8%, Greek 10 year at 1.64%

      Remember 2015 when the Greek 10 year traded at 19%...not to talk about 2012 when it traded at 39%?

      Do not show this chart to Trump - US 10 year at 1.8%, Greek 10 year at 1.64%
      Thomson Reuters

      S&P -time to get excited?

      Every break up attempt has been followed by a reversal lower and every break down attempt has been followed by a bounce since March.

      S&P -time to get excited?
      Thomson Reuters

      Could the crash in market neutral momentum spark a rally in the S&P?

      All major crashes in market neutral momentum index have been followed by monster rallies in the S&P.

      Could the crash in market neutral momentum spark a rally in the S&P?
      Thomson Reuters

      Kolanovic: this rotation could continue into a more sustained rally

      1. we believe that the value rotation can continue and the broad market could move higher going into October negotiations, and if real progress is made, continue into a more sustained rally.

      2. This view is based on positioning, record factor spreads (e.g., value vs low volatility), and an unwind of some of the August technical flows in both rates and equities.

      3. Given that the S&P 500 is heavy in bond proxies and secular growth, we would expect higher upside potential in small caps, cyclicals, value, and Emerging Market stocks than the broad S&P 500.

      4. If the October negotiations fail, these moves could be unwound, but given the extreme low positioning and style tilt, we think the downside is limited.

      Kolanovic, JPM

      Crowded CTAs in yields imploding quickly

      One of our "top" themes last week was that yields could reverse quickly, and given the massive one way positioning in yields, moves could get magnified and p&l among momentum CTAs hit hard.

      This is just what is occurring. The multi billion USD hedge fund that we come back to has produced majority of p&l this year going one way in yields, and the recent little pop in yields has taken YTD p&l from +30% to now only 23.5%.

      23.5% is not bad for the year, but down 7% from recent highs in a week seems a little "volatile".

      Our note from last week "Huge crowded yields momentum trades about to panic?"

      https://themarketear.com/posts/cspKa_xH7

      Crowded CTAs in yields imploding quickly

      Global economic surprise index at highest level of the year

      Green shots.....

      Is the world turning?

      what if we all have been wrong on the economy?

      Global economic surprise index at highest level of the year
      JPM

      Positioning: Gross at 18 month high and 99%-tile

      HFs feel a need to gross up. At least one small measure of risk-on mentality...

      Positioning: Gross at 18 month high and 99%-tile
      JPM

      Greed is good...

      ...at least for picking market tops, but that seems still a little distant despite fear having reversed big time over past sessions....

      Greed is good...
      CNN

      THE BID

      should we get nervous about the buyback bid,, the single most important support to equities?

      1. it was down YoY in Q2

      2. now we are entering into the progressively increasing black-out phase for Q3.

      (chart from last year but calendar should be similar this year)

      THE BID
      Teddy Vallee / Deutsche

      GDX breaks the trend

      We received several "angry" emails a few days ago when we asked if long gold, and especially long the GDX space was a "rational" trade given the fact VIX and other risk indicators had stopped flashing red "long" time ago.

      GDX is a very crowded long, so watch the close today closely.

      GDX breaks the trend
      Thomson Reuters

      Bull & Bear Indicator - squeeze to continue?

      BofA's indicator, confirms what we at TME have been pointing out the entire week, tumbles to 0.6 from 1.3, most bearish investor positioning since Mar’16, on global & EM equity redemptions and extreme

      outperformance of Treasuries vs. corporate bonds.

      Bull & Bear Indicator - squeeze to continue?
      BofA

      Inverse Panic - we are waiting for the sales call explaining vols should stay low

      Eurostoxx 50 volatility continues moving violently lower today again.

      Our take on range bound markets and people managing to hedge at way to rich levels remains intact, but given the pace of vols moving lower, volatility will shortly offer opportunities for hedges and other long premium strategies.

      Less than a month ago V2X traded at 25, now it is at 14.7....

      Inverse Panic - we are waiting for the sales call explaining vols should stay low
      Thomson Reuters

      Momentum rolling over....

      Momentum rolling over....
      Goldman Sachs trading desk

      Huge crowded yields momentum trades about to panic?

      We have seen some interesting moves in US and German 10 year yields over past 24 hours. Lower yields for longer is probably the most consensus trades out there, and people have put a lot of money into that view, especially the CTA momentum guys.

      We wrote about this only a few days ago, asking us what could happen if yields reversed, even small.

      The multi billion USD CTA fund we often come back to lost 2% in their latest daily update. Majority of their YTD p/l originates from the extraordinary move in yields.

      These guys are good at "maxing" out trends, so expect the aggregate positioning in yields to get rather sweaty should the move continue.

      Chart of the fund showing the blue line which is the contributing gross returns from yields, black total, and rest is just noise.

      Huge crowded yields momentum trades about to panic?

      Mighty Yuan - We have not seen the Yuan gain "properly" 4 days in a row since 2017

      Mighty Yuan - We have not seen the Yuan gain "properly" 4 days in a row since 2017
      Thomson Reuters

      VIX futures spread, our preferred way to look at VIX, continues trading lower

      Short term demand for protection is fading quickly, although absolute levels of the spread remain elevated as people still have the "wall of worry" feeling present.

      Below the 2 vs 8 months VIX spread.

      VIX futures spread, our preferred way to look at VIX, continues trading lower
      Thomson Reuters

      GBP frustrating everybody

      As we wrote only 2 days ago: "GBP traded below the huge 1.20 level but has since then reversed. Why not a hammer candle here, just to confuse everybody again?"

      https://themarketear.com/posts/cTT-8CJxp

      Since then the sterling has put in a massive rally and is currently breaking above the negative trend line.

      GBP frustrating everybody
      Thomson Reuters

      Green shoots for Oil?

      Oil has suffered from huge unwinding of open interest (OI) from May 18, a positive sign of late is OI is up over 100k in last 6 sessions and importantly this has mirrored a corresponding move in underlying futures, a very positive sign, bears watching (sarc).

      h/t @RobertMacMinn

      Green shoots for Oil?
      MAPS

      Buybacks; an explanation to the underperformance

      A lot of focus on why the buyback index is underperforming S&P500, despite billions and billions of new buying.

      25% of the buyback index is made up of financials, where crashing yields are far more important than the buyback support.

      Conclusion? Buybacks matter a lot for overall market but on a stock specific or sector specific basis there are / can be more powerful themes in play

      Buybacks; an explanation to the underperformance
      Thomson Reuters

      Gold as a fear hedge

      There are many fundamental reasons to own gold, but being long gold as the "fear" hedge does not look like the most "rational" trade.

      VIX can not trend over time, while gold can, but in terms of "fear" and uncertainty, these two assets tend to move in tandem.

      While gold trades close to recent highs, VIX has continued fading.

      Which one do you pick as the hedge?

      Gold as a fear hedge
      Thomson Reuters

      CS Strategy: do not be short equities

      Andrew Garthwaite is out with a new defence piece on equities:

      "we do not believe an underweight stance on equities is appropriate, given that macro concerns look overdone, policy is becoming more proactive, and—most important—the equity risk premium is abnormally supportive"

      TME summarized reasons:

      1. CS valuations models say US equities are fair value, with the current weakness of ISMs priced in.

      2. The inverted yield curve - this time it is different as a result of both QE and the fact the Fed are fighting the inversion, not causing it as in the past. Six months after the 2/10-year inversion, equities have risen 75% of the time, gaining 7.7% on average.

      3. Earnings revisions are declining (having turned up in early February), but this tends to be very closely correlated to PMIs (so should improve in late Q4).

      4. Geopolitics: Media mentions of the trade war are back to peak levels, but we don't expect a further escalation. We think more trade is being liberalized than affected by US/China tariffs.

      5. Buybacks should remain a support.

      CS

      China Bear?

      While the crowd continues pushing the China bear case, Chinese equities continue the melt up. The most significant index when it comes to speculation is the ChiNext, +13% since mid August.

      China Bear?
      Thomson Reuters