1/x That was quick. All it took was 3 days to go from a technical break below the 20 day, to get a move down to 2.5 std dev down. These types of moves don’t happen easily & the scale of price weakness must be respected for what it says about supply/ demand for shares. Despite
2/x the trend change & weakness, we must be aware that sometimes countertrend rallies in a down move aremassive.We saw several things today that told me we were getting towards a short term inflection. 1-the scale of the move relative to IVol was simply too far too fast 2-retail
3/x equity call buying, after hanging in the last 2 days on the drop, suddenly disappeared & shifted to a wave of puts 3- the NDX was relatively strong 4-all of this, while after a long absence, charm/vanna flows have finally begun to show themselves once again on open & close
4/x & EOM/BOM flows should be on the way this Fri/Mon as well... that said, all of these minor positives are countertrend, as the trend is now down & technical picture has broken during the window that were we had expected weakness & IVOl spike has confirmed the trend change
5/x This trend break must be respected & all marginal readings of our models are to be sold & any initiated longs are to be played short term only @ extremes w/tight stops. That said, time is on the side of the supporting flows &, countertrend or not, they should continue to gain
6/x strength into the end of the year. As mentioned, continue to look for them most at close & preopen of trading, as we are seeing now...Lastly, it is important to note that Nov monthly Vol & skew is low, while this will likely mean less vanna/charm flows than usual this expiry
7/x due to dealers long positioning here, it‘ll likely mean significant Vol & skew compression, if the SPX continues to work lower during this period. If the election results resolve themselves within this window this IVol compression should carryover to Dec/Jan where the street
8/x is short Vol & the potential energy of a IVol decline should lead to dramatic vanna flows & the buying thrust needed to reverse the trend back to the upside for an EOY run...Until then we‘re oversold within a strong negative trend. As noted, trade accordingly. Good Luck! 🍀

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More from @jam_croissant

30 Oct
1/x In my1st year in the pits of Chicago, I quickly learned a favorite pastime of idle traders on a Friday w/nothing trading was to create a humorously absurd challenge for someone on the floor to undertake & then coax the entire trading apparatus into action betting on outcomes.
2/x By the time the challenge had fully taken hold, there would be hedge funds in London & banks in Paris taking positions on whether or not ‘John’s’ Clerk ‘Gary’could eat 150 Chicken McNuggets in 60 min..Early on I would look at Gary, look at some online research & place a wager
3/x But after a few months, it became clear you always wanted to bet on ‘Gary.’ or ‘Mary’, regardless of how crazy or ridiculous the challenge, because, invariably, ‘Gary’ was offered some portion of the winnings of the bets for him to encourage him to compete in the 1st place.
Read 6 tweets
27 Oct
1/x So a quick post Morten trade school: today should‘ve been a disaster.I had turned long in the last 2 days preemptively before my 10/26 deadline thesis. But despite a massive market drawdown, it ended up being a big winner. How? It’s all about preparation & discipline...
2/x I had a clear trailing stop in place on close that i have studied ad nauseam & had a clearly defined level of support that I was confident would lead to a gap if broken. I knew that gap was big enough relative ivol, that gamma would pay for any losses in spades if broken
3/x so, the plan was clear, wait & let the market price dictate my position. Don’t jump the gun, but the second price breaks into a different part of my understood distribution, i was into the next low risk/high reward play on the other part of the distribution. It is all about
Read 5 tweets
26 Oct
1/x I will keep this brief, so as not to repeat myself. I am cautiously bullish & have yet to add to my 50% long exposure from lower. Candidly, despite price action that has broadly confirmed my thesis @ every turn. Come Mon we will have made it through the most challenging 1.5
2/x week window for these markets without any technical damage...Seasonality & vanna flow cyclicality will continue to significantly improve from here. This week EOM/BOM flows should also provide support.Maybe most importantly however, is simply Short-dated index IVol compression
3/x this compression has served to pin these markets the last several days, despite numerous threats to their stability. The threats have come from DXY & MOVE & their knock on effects to the duration trade/ NDX. These threats are not to be taken lightly, & just as we have seen
Read 8 tweets
23 Oct
1/x Both Pres candidates confirmed that there’s no stimulus deal, and the reaction from the market? Yaaaaawn. Red Herring. As predicted in space & time we knee-jerked to the 20day in the Wed-Fri window w/a negative knee jerk on this ‘negative’ news today. & there you have it...
2/x The market reacted well around the 20 day, & we have what looks like it‘s likely the short term bottom we’ve been looking for. As I’ve insinuated here & been more explicit w/ a number of you by DM I’ve been adding @ the 20day the last 2 days after patiently waiting for a week
3/x & am now 50% long from those levels & looking to add to these positions over the next 2 trading days. Although the window has not officially closed yet, the body of supporting evidence has grown to a point where our models have pointed to the need to proactively risk on.
Read 8 tweets
21 Oct
1/x Today price action was important. The price strength in the face of numerous attempts to break down & uncertainty surrounding stimulus talks was impressive. It was also notable in its inability to not even reach the 20 day. This is the kind of price strength you’d expect from
2/x a market intent on a bullish thrust. That said, election vol was notably bid today despite the rally & the NDX was relatively weak, which should continue to give us a bit of pause. Maybe most importantly today though was quite simply the passage of time.We are 1 day closer to
3/x reinforcements in the form of more positive flows starting next week. Tomorrow is VIX expiry & importantly the deadline for a stimulus deal. How the market responds to these events is critical. As I expressed in a separate thread, I would be surprised to see a stimulus deal,
Read 11 tweets
20 Oct
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
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
Read 8 tweets

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