1/x ‘Twas the night before Christmas & all through the market not an order was stirring not even for $TGT.
The bonuses were entered into payroll with care,
In hopes that next year would bring a similar fare;
The Bulls were nestled all snug in their beds;
2/x While visions of $TSLA danced in their heads;
& Biden in his Covid mask, & Powell with his still flowing money tap,
Had just settled their brains for a long winter's nap,
When out on the screen there arose such a clatter,
All sprang from their beds to see what was the matter.
3/x Away to their monitors they flew like a flash,
Tore open their Bloombergs & threw up the dash(board).
The S. Claus rally in markets, that all of us know,
Paired w/vaccine reopening, Gave a bid to the market, leaving old prices below,
When what to their wondering👀 did appear?
4/x But a Georgia runoff rushing up to them with complacency, not fear...
With once reliable Vanna flows no longer lively & quick,
They knew in a moment the markets might get quite sick...
Unexpected, 2 Georgia Dem peaches into Congress they came,
5/x Whistling & shouting they called for more fiscal, ‘CARES Too’ its new name:
"Now, Healthcare! Now, Infrastructure! Now Green Energy & Protectionism!
On, Labor rights! on, Minimum Wage! on, Basic Income & Populism!
To middle class households, To the poorest of them all!
6/x Now spend away! Spend away! Spend away all!"
As prices that before the wild 🚁 money flies,
When met w/fiscal stimulus, mount to the skies;
So up longterm rates, up they flew!
W/ commodities & real estate too-
& then, in a twinkling, they heard a crack in IPO’s & the SPAC’s.
7/x The faltering & slowing of growth names like ‘Slack’.
As they drew in their head & looked @ the market all around,
Down the chimney multiples slid with a bound!
Backed with only speculative cash, from retail’s Wall Street Bets,
& w/ shares priced on eyeballs like 2000’s $PETS
8/x A bundle of junk without any more free money for bills,
The ‘growth’ complex began to look like a Nikola truck rolling down hills...
But Value investors—how their portfolios twinkled! Their relative performance, how merry!
9/x W/the real economy, smelling like roses, demand for goods, what a flurry!
For the 1st time in decades their mouths drawn up like bows,
@ their backs, to their surprise, the beginnings of actual passive flows!
Gone buybacks, now antitrust hearings & regulatory action w/ teeth,
10/x In their stead, Discounted Cash Flows encircled the head of Value Stocks like a wreath;
Household incomes expanded, returning status & food to the working class belly,
That, after decades, shook again, when they laughed, like a bowl full of jelly.
11/x Chubby & plump, the now shiny new, rust belt, turned to Biden, that senile, jolly old elf,
They all began to laugh when they heard him say, ‘Folks...’, in spite of themselves;
A wink of his eye & a twist of his head,
12/x Soon gave the electorate even MOAR stimulus, making them believe they had nothing to dread...
So, despite equity markets’ continued decline, he went straight back to work,
Rebuilding ‘Back Better;’ then inflation ticked up, with even more of a jerk,
13/x And Powell & Yellen, heading a re-emergent Phillips curve, forcibly set down their monetary hose,
And giving a nod, up the yield curve even more the rates rose;
Savers delighted, as the TINA effect gave its last whistle,
And away the economy flew like the down of a thistle.
14/14 So, 4 years later, despite poor real market returns, We could still hear Biden exclaim, with his 2024 re-election victory in sight—
“The Economy Is Not the Stock Market...
Merry Christmas...& to all a good night!”
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1/x Tonight’s update is Same Same but Different...but still Same. To keep it short, EVERYTHING FROM YESTERDAY STILL APPLIES. The only addendums are on 2 fronts: 1) I fully expect the market for the next 2 days to continue to try & shake the longs. Sentiment has already normalized
2/x a bit after yesterday’s rollercoaster. A close below the 20 day (but above 1 std dev of the 20 day)would seem like a perfect stair step destination & would go a long way to shifting some systemic strategies less long+ forcing retail out of some of their long calls. This could
3/x be just the correction in price/time head fake this market needs in order to set off another shot at a 2/28-1/4 rally to 3752.5...Until 2/28, SPX Vol compression should remain dominant & I’d continue to expect some chop. That said, 2) I’d reiterate, given the action in Europe
1/x This market’s stuck & going nowhere fast....Election Resolution ✅ , Vaccine success ✅, Fed support ✅, Stimulus ✅, TSLA inclusion ✅. All of these themes that we have been riding now for almost 3 months have 1 by 1 been resolved exactly as expected. & so, here we sit @ ATH
2/x w/ extremely overextended sentiment & positioning by both HF & Retail... Vanna flows have driven the expected rally & commensurate Vol compression to an extreme, & though their work is not yet over, with the indomitable flows of Santa Claus & the Jan Effect waiting patiently
3/x around the corner, their terminal point is in sight, and the 1/5 GA primary sits only 2 weeks away...As such, the headwinds to this market are growing ever stronger by the day. Our calls for a correction in price post Dec OpeEx morning came & went on Fri, resolved by forced
1/x This’ll be short...For those wondering why I haven’t had a new daily thread, it’s because nothing has changed. Tomorrow is 🧙♀️🧙♀️🧙♀️ OpEx, & per usual, I expect morning support, followed by a correction in time & price as any remaining Vanna dissipates. Index compression
2/x continues to drive the price action & as mentioned in an earlier TSLA thread, the compression is so extreme at this point it has all but pinned the index until 12/28. We’re witnessing this overnight as the blacklisting of dozens of Chinese firms received ~ no SPX reaction.
3/x Due to this I expect very little moves in the next few days. If we do get a pullback, on any stimulus worries, I would look to be a buyer around the 20 day or by EOD 11/21. Although cheap, next week IVol is a sale & calendar call spds & dispersion trades continue to be my
1/x I’ve done some thinking about this TSLA inclusion event... My read is that @bauhiniacapital is right that TSLA is it’s own Vol center & will not have its RVol meaningfully suppressed by SPX...That said, SPX RVol for the next 2-3 weeks won’t likely be meaningfully raised by
2/x TSLA’s addition either. The compression due to oversupply in the SPX is simply too extreme @ this juncture over the holidays, EOY, and Jan effect. Which leaves the the only possible remaining outcome as a decrease in constituent correlation...This is what we saw in 2017 & is
3/x the usual release valve under these types of conflicts between index Vol suppression and single name idiosyncratic Vol. So, IMO, in the short term the answer to make $ on this, will likely not be to sell 1 Vol & or buy the other. The way to profit here will be to suss out who
1/x I’m going to do this early & keep it short today... EVERYTHING FROM YESTERDAY STILL APPLIES, but I’ll add a little more texture here. Tomorrow morning is vixperation. Which is another 1 of Vanna’s big mornings. It is also Fed day, which is historically the most bullish days
2/x of the year. In particular there is significant potential headline risk to this fed meeting b/c of what it says about what the Fed will do to ease liquidity concerns surrounding EOY... This paired w/ potential headline risk around the fiscal stimulus plan, would make me very
3/x worried, if I was exposed to upside risk in the market. That doesn’t mean that we can’t get disappointment on either of these fronts, we clearly could. & given vanna’s diminishing role after the open, it will likely pay to take profits if vanna is able to muster another push
1/x The market continues to try & shake out weak hands from overextended positioning by both HF & Retail...After a strong Vanna run up overnight, as expected, retail exuberance exploded on the open in the form of retail call buying, this fragility, paired w/a)Mean reverting flows
2/x from pinned Index Vol b) well documented, risk parity rebalancing flows & c) selling flows tied to bank EOY liquidity constraints. In combination, these flows have together have amounted to substantive selling pressures, strong enough to counteract the positive vanna/ charm
3/x flows, & point to continued likely index RVol an IVol pinning...Historically, the week of quarterly OpEx markets are notoriously volatile intraday, but also mean reverting like we saw today. I think it is fair to expect continued IVol compression & more of the same underlying