The “Most Hated Rally”
- A rollback of Chinese tariffs are around the corner. Here (good for KWEB, bad for FXI). FXI has a +25% weight to financials which are about to be demolished and heavily regulated. Easy pair trade.
- Energy vs QQQ is back. Expect a bounce back in energy for the week.
- USD weakness helps bid energy, which will also help raise interest rates
- The European Center Bank’s First Rate Hike In 11 Years. They are already expecting policy mistakes. Wait for an entire EU country to go under before acting.
- A whistleblower says Google’s AI bot is sentient. The transcript is wild. Here
- Call vols and skews are very firm as there is growing sense that this rally is different and might be able to continue.
- Back in June when the S&P was 3750 we noted that 4000 was not consensus but certainly possible.
- This rally can persist and investors will hate it.
The ECB will step in and buy ETFs if it needs to during this rate hike. This is BIG. Source Here
KWEB is still outperforming
Expect a weaker US Dollar and a 1.05 Euro
The only Bitcoin chart that you need.
Expect this +10% spread to tighten.
Energy was dragging yields down with it but expect a bounce-back this week after being extremely oversold.
The FED Just Crushed Demand. Better now than later.
Gasoline Build Also Signaling Demand Destruction
Rules To Remember:
Return Always wants its risk payment.
Trading one asset class is trading blind.
Fundamentals were always just a narrative.
Price action matters most.
NEVER MISS THE NEWS THAT MATTERS MOST
RISK MANAGEMENT ABOVE ALL
TME DAILY: ARE WE THERE YET IN TERMS OF THE “SQUEEZE”?
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First sign of a “squeeze top”
High SI stocks got covered in fairly large magnitudes this week. In terms of HF flows, JPM saw sizeable covering over the past week (2.3 sigma over past 5 days). The JPM basket of US High SI stocks was up 12.5% over the past 5 days (through Thursday), one of the largest 5d gains over the past year.
Source: JPM
Net leverage at highest point since May
Morgan Stanley PB Strategic Content Team notes this was the 2nd largest week of active de-grossing this year, with US L/S funds actually ending net buyers of equities after covering shorts in excess of what was sold on the long side. As a result of this dynamic, US L/S net leverage ended the week at its highest point since May (44%) but still far below historical levels (31st %tile over 1Y and 13th %tile since 2010). (Morgan Stanley)
Not much “risk” in the risky
The SPX 1 month 25 delta risk reversal is trading in a rather “muted” fashion. People aren’t overly concerned about the downside…
Source: Spotgamma
This delta looks awful (still)
The rate of change in margin debt isn’t looking great…
Source: Tier1Alpha
Source: Tier1Alpha
This sentiment indicator is off-lows
Fair, still in negative territory but…..(a) way off-lows (b) “a >100-day high” and (c) bar a few readings a 2022 high….Maybe this is the best we will get in terms of sentiment and this is the (a) signal to short again….
Source: Macrobond
This sentiment indicator too….
Maybe Kenny was right and… “the best that you can hope for is to die in your sleep….cause every hand’s a winner, and every hand’s a loser”
Source: Fear & Greed Index
One marginal buyer is fading soon – sell or sell?
The short gamma dealer crowd has been forced to chase the latest rally as they have become shorter deltas as we have squeezed higher. Note we flip into long gamma slightly higher. Dynamics would change if we flip into long gamma as dealers would become sellers on “upticks”. The profile shows short gamma comes into play should we sell off from here. From a point of gamma we have a new sell or sell situation…
Source: Spotgamma
Pouncing the Pivot
Important if you are keen to buy because of the upcoming “Fed Pivot” in 2023. Kantro: “Market performance after the Fed is done hiking depends on 2 things: 1) are we heading towards a recession?; and 2) how far is that recession away? When recession followed, but recession was near, stocks saw a paltry pivot rally and then kept falling”
Source: Kantro
A normal bear
The average duration of a bear market is 20 months with a loss of 41%. Why could not this one be much worse than average..?
