1/xFri & today are perfect examples of why you don’t chase a rally when you don’t have flows behind you. As I‘ve stated, this is a window of time where the market is vulnerable. Despite encouraging strength mid-last week, the fact that we were overbought & sentiment & positioning
https://twitter.com/jam_croissant/status/1317944287087251457
2/x were so stretched have made it easy on the shorts. This morning’s significant NDX underperformance and significant retail overextension as shown by p/C equity, were once again what we were called for and were textbook signals. But now, here we are, not surprisingly, at
3/x a crossroads. We are no longer overbought & sentiment has definitely shifted. Fixed strike IVol was significantly compressed today, just as it was on the last leg down.Vanna delta liquidation in the NDX complex, which was obvious this morning, by the end of the day had abated
4/x seasonality & Vol flow cyclicality continue to aggressively improve by the day, & the potential for positive vanna flows from the election are even greater than usual. And of course, here we flirting with our old friend the 20 day(historically strong support into an uptrend)
5/x rushing up to meet us. The rest of this week is critical. VIX expiration is Wed. NTM the stimulus narrative lines up perfectly with the important inflection point. If the IVol compression & normalization of NDX names’ vanna flows continues, with an increasingly negative
6/x shift in sentiment (potentially on back of failure of stimulus?), there could be reason for optimism, given the improving flows that await the market, starting next week. But 5 days is a long time for the market to hold up against a rising 20 day & limited positive flows.
7/x & without a more meaningful shift in retail sentiment & HF positioning soon, it‘ll be hard to trap shorts & get enough underweight longs to get the fuel the market desperately needs for a sustainable bounce to support the technical picture & avoid setting off bearish flows
8/8 Watch SPX fixed strike vols, a pop here or skew, which we haven’t seen, would be concerning. continue to watch NDX to confirm vanna normalizing, & p/C eqty/sentiment closely. Watch the 20 day on close! As I’ve said, don’t be a hero. play levels w/ tight stops. Good luck!🍀
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