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
https://twitter.com/jam_croissant/status/1321459115026165760
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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