1/xGary barely held on for Vanna. The animals are still out of their cages. But Vanna is back & refreshed, & she is 1by1 using her Charm to coax them back into their cages. Gary already seems more relaxed here overnight, after a stressful couple of days where he wasn’t fed by the
2/x zoo keepers, & seemed more like King Kong lashing to & fro. While Vanna was gone, the de-grossing process driven by the retail call short squeeze mob took an overbought market, in a window of weakness that we have called for some time and managed to drop it over 5%. This has
3/x been much needed drop coming on the tail of a 20% market sprint since Sep. But at over a 7 sigma move the de-grossing action may have reached its ultimate terminus point at the logical investor reporting date of 1/29 EOM. Pair that potential selling exhaustion w/positive BOM
4/x flows,& the long awaited return of Vanna from the beach w/ tremendous potential energy in the form of a 30 VIX, a market w/still strong underlying momentum, indexes that are significantly oversold on a ST basis,& ST fixed strike IVol that, despite the size & speed of the move
5/x significantly underperformed, showing increasing signs of resilience from Gary, & a potential recovery of the critical 1 stdev down of 20 day on close could very well be in the cards. As we sit at this level overnight, a last minute ‘kick save’ above this level on a closing
6/x basis would be quite bullish. Given all of this, time is on the bull side. A reopening is ultimately coming... & a current slower reopening, as I've mentioned, ironically sets up for a ST Goldilocks scenario, potentially drawing out even more fiscal stim & ultimately getting
7/x us ready for a more supercharged rest of the year… That said, ultimately price is truth, & it is possible the deleveraging isn't yet over. At the end of the day this market should be strong after this refresh. If we can’t recover the 1stdev down of 20 day on a closing basis
8/x today, w/everything it has going for it, then we could very well still get a cascade, as increased deleveraging leads to more selling in systematic strategies like risk parity, vol targeting, & trend following. This market's especially still vulnerable due to poor seasonality
9/x (although it should be improving from here) & due to still historically elevated net positioning. In terms of headlines, watch for a Rhood statement in the next few days dispelling liquidity fears. If we make it thru this period & get a nice rally in the next 2 weeks into
10/x 2/14-2/19, when things could once again get a little shaky, I’d look for a new negative narrative to take hold w/some of the policy objectives becoming clear. I'm increasingly worried re: negative news tied to China-US relations that many could be sleeping on & the potential
11/x for a real unexpected push for increased protectionism…That could help to once again accelerate the inflation narrative, but this time not driven by growth but supply. Especially now that there seems to be bipartisan support for censure against the CCP & its actions against
12/x the Uyghurs, especially given that this could be a savvy political tactic to help broaden Biden’s appeal. In the ST watch our mentioned technically critical level closely. Watch for NDX weakness & P/C equity overreach that might make it hard for the market rally. Today's a
13/x critical day, if the BTD plan is to hold. Play our levels w/ long gamma after the open & look for a move to the upside to run, if it can take hold. Continue to play it w/ a closing stop & 0 cost convexity hedges in 2/12 to the downside. Good Luck!☘️
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