1/x So why did this extreme rotation happen the last 2 days? The benefits to economic growth for value stocks is obvious.BUT WHY A ROTATION & NOT A BROAD RALLY? I’ve put out a lot of commentary about how the increases in econ growth expectations that the vaccine & fiscal stimulus
2/x cause are bad for the duration trade & multiples. I’ve been pounding the table on this for quite some time. But it’s important to note that these fundamental threats to growth still come w/ a lot of potential caveats, are far from certain given the likely political landscape
3/x @ this juncture, & will likely play out over years/decades, not days or months...SO WHY?! The answer is simple. As I’ve explained before, & I worked w/ @choffstein to help him enumerate in his fabulous piece ‘liquidity cascades,’ when index IVol is compressed, as it is now,
4/x & idiosyncratic risk forces constituents of the index in 1 direction, in order for the index to stay pinned, due to the forces of arbitrage, there must be an equal & opposite move by the other remaining constituents of the indices in the other direction...
5/5 Vol markets in the indices are now macro dominant.They’ve been increasingly so for 2 decades & have been firmly in control of price action since 2014-15. It’s not a coincidence that we’re seeing more 6 sig+ moves relative to history. These aren’t your father’s equity markets

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More from @jam_croissant

12 Nov
1/x Short & Sweet tonight: Today’s market action was quite constructive....Our short near dated Ivol & SCALPING FOR MEAN REVERSION IN EITHER DIRECTION WORKED PERFECTLY YESTERDAY.... & WE HAVE NOW BOUGHT INTO THIS MUCH AWAITED DIP OVERNIGHT @ our published level of 3539.75.
2/x We not only got the continued correction in time & massive vol compression we called for, But we also finally got some much needed repair of the nasty rotation beneath the surface, which has kept us cautious...That paired with the dramatic reduction in retail call buying &
3/x substitution of fearful retail put buying for the 1st time in a while speaks to improved sentiment factors... giving us the green light we have waited for. As I reiterated yesterday, UNPINNING THIS MARKET WILL NOT BE EASY, as the SPX has been well oversupplied...
Read 7 tweets
11 Nov
1/xToday’s market action was generally constructive as WE GOT THE CORRECTION IN TIME WE PREDICTED... That said, we continued to have a nasty rotation beneath the surface, which has kept us cautious. The dramatic NDX weakness, in the face of improving economic fundamentals is
2/x concerning in that it continues to signal that the duration trade will not likely respond well to a strong economic recovery paired w/fiscal policy & higher LT rates, & it does not appear that value is strong enough to support this market given the multiples at play & size of
3/x the growth complex. On the bright side, fear is creeping back intro the market and retail call buying was substituted for considerably more put buying for the 1st time in a while...Maybe most importantly though was the continued SPX vol compression. As I reiterated yesterday,
Read 8 tweets
10 Nov
1/x OUR ANTICIPATED PFIZER NEWS CAME SOON POST ELECTION, AS PREDICTED ... But, as is often the case, positive prospective news can serve the market better as a rumor then as actual news, as it now provides less potential future support from hopeful expectations. Despite a weak
2/x close, the market was still able to barely overtake our important level in the 1.5 st dev up of 20 day of SPX... WHERE, AS OFTEN HAPPENS W/ IMPORTANT TECH LEVELS, CLOSED DIRECTLY ABOVE IT...Today’s market action, though superficially constructive, had quite a # of concerning
3/x underlying factors beneath the surface. The dramatic NDX weakness, in the face of improving economic fundamentals is concerning, in that it continues to clearly signal that the duration trade will not likely respond well to a strong economic recovery paired w/fiscal policy
Read 9 tweets
9 Nov
1/x As noted on Thurs... 11/9 dealer positioning was very short & Vanna flows would clearly be supportive into Mon morning...That paired with more Vanna flows, on the back of greater election certainty are not a surprise here... Fri’s market action was very constructive. After
2/x Thurs when IVol moved significantly higher in the back of the curve, vol compression reappeared across the curve. NDX weakness on Thurs & Fri morning notably reversed in Fri afternoon & stabilized. The last missing positive sign, as I‘ve mentioned, was an underlying price
3/x thrust in the face of an approaching technical level in the 1.5 st dev up of 20 day of SPX. We seem to be receiving that overnight now... As tweeted, we initiated short Vol Fri late morning, upon Vol compression & NDX reversal, given these prospective coming positive vanna
Read 8 tweets
6 Nov
1/x The outlook was indeed promising yesterday... As posted, we were able to monetize our long deltas & short Vega this morning at the 3508.5 level. Good thing, b/c, as highlighted midday, fives strike IVols bottomed & moved significantly higher in the back of the curve.
2/x This kind of move into a rally can serve to unpin the market, if it continues, & shows concern on the part of institutions, retail call buying exuberance, & is a sign of increasingly short dealer gamma positioning. Moreover, we had several other ST warning signs today.
3/x NDX weakness, low P/C equity reading all day, & maybe most importantly, a very poor price thrust to an approaching technical level in the 1.5 st dev up of 20 day of SPX. This weakness is particularly notable given the dealer gamma squeeze that should have helped the market
Read 9 tweets
5 Nov
1/x Post election Vol compression w/ massive Vanna flows ✅ Rally & hold above the 20 day on close ✅ Dec/Jan election hump flattening some, but still has room to continue to decline which could yield potential energy here. 11/9 dealer positioning is also still quite short &
2/x should be supportive into Fri/Mon w/more Vanna flows & a potential election resolution soon...The outlook looks promising here. We were able to jump back in long @ EOD & are still short Vega/long gamma.Time is on the side of supporting flows,as they should continue to gain
3/x secular strength into EOY. As mentioned, continue to look for flows most on close & overnight, as we’re seeing now... It’s important to play any long w/stop @ 20 day on close, as technical picture, though improving, is still potentially precarious until we get close 1.5 std
Read 7 tweets

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