Dumb money is smart money these days?

To start November, systematic strategies were running $240 billion worth of long exposure compared to a max long of $530 billion of exposure in February, so plenty of scope to add. During the middle of November, it was forecasted approximately $12B billion worth of systematic buying per day with the VIX ending November at 20.57, its lowest close since Feb 21st (the Friday before the Covid crash began). The november VIX fall was also one of the fastest 50% reduction on record.

But this story with CTAs has changed here, their buying should be done and out of the picture. Even in an up market, Goldman expect CTAs to turn sellers over the next week and there’s a sharp asymmetry to their flows going forward.

Refinitiv

VIX is not cheap enough to buy, not expensive enough to sell, remains our main "logic". Do note that December, on average, has been one of the bigger up VIX months over past five years.

Longer term, December is one of the weaker VIX months, with the lowest median reading, but that is historically from 1928 -2019.

Bloomberg

The call euphoria has continued, especially when it comes to single stock names. The same dynamics are playing out, retail (and gamma whales, although Softbank is winding down the call spreads operations) have been busy loading up on upside calls, creating a feedback loop where dealers chase deltas higher and higher as their short gamma explodes the higher stocks move.

The call buying has been so strong put call ratios have fallen hard, but not only is the hunger for calls over puts extremely strong, the pricing of calls relative to puts also trades at extreme levels (pointed out by TME last here).

First chart shows the extreme put call ratio having reached multi year lows and single stock put/call skew reaching lowest levels in a wile, back to early Sep level which was the "local" high for markets. Options mania is getting slightly extreme here…

Second and third charts worth viewing, although self explanatory.

GS sales desk

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Click here to see all the charts for this post

Protection puke has been epic, but as we have said for weeks, VIX is not dirt cheap, at least not yet. The structural bid in VIX we at TME believe in will still be present, and we do not think going back to "long term average" levels of VIX, so the bid will be there but you need to adjust your mind to what VIX "cheap" really is.

Below chart shows VIX in relation to ISM worth reviewing. With the current bullish vaccine narrative and the economy ticking along well, "fundamental" VIX vs ISM shows VIX is far from cheap, but there are many other factors to consider…

Goldman Sachs

Add to "stretched" arguments…corp insiders are selling at the fastest pace in years according to MacroCharts. There is not one indicator that tells you things must go up or down, but insiders timed it, although early, during some of the previous corrections…or there is always the possibility of them being stupid…

MacroCharts

A lot upcoming, but surely there is no more positive surprise potential here now from vaccine news…?

Refinitiv

Note that Bitcoin has done nothing, except for shaking out people both ways lately as volatility has been huge and trend has been zero, while the DXY has been breaking down big.

The big move up in Bitcoin during this autumn was on the DXY trading stuck in the range, and when the DXY finally breaks down, Bitcoin only produced volatility and no returns.

Not the kind of dollar crash logic you you are hedging…

What if Bitcoin is just a speculation itself, especially now when billionaires, institutions and family offices all chase it?

Refinitiv

1. There are currently 49 million accounts now open for online brokerage in the US, a jump of 13M million new accounts in 2020.

2. We printed a new record of 10 million trades per day earlier this year.

3. during elevated periods of volatility it is estimated that retail activity make up 25% of total market volumes, up from 10% in 2019.

4. weekly call options from retail have significantly impacted short gamma. 

5. the "retail favorite stocks" basket is up 142% percent since March and up 80% YTD. This can be compared to GS HF VIP basket (up 37%) and Mutual Fund OW basket (up 15%) ytd.

6. Households have a 41% allocation to equities according to the federal reserve board. This is just shy of the 47% record during the tech bubble. A 1% percentage point increase in allocation would be about $1 trillion worth of demand or 3% of the S&P market cap.

Barclays

 The initial dollar sell-off after a recession-end typically starts consolidating at this point, before resuming a trend decline in the middle-latter part of the global expansion cycle 

JPM

Latest AAII sentiment reading shows another move higher for bull. The big move higher was due to the fact the survey was conduced on the Pfizer vaccine news day.

Refinitiv

AAII bear sentiment readings staying depressed.

Looks there are a few left to be stopped out…

Refinitiv

On technicals, worth flagging the risk inherent in a market with record high sensitivity to interest rates, with High Grade DV01 at a record high $7.1bn per basis point (e.g. the market value of our JULI index declines by approximately $7.1bn for each bp rise in yield).

Chart: US High Grade DV01 at a Record High

JPM

Some snippets from the GS "I have a dream" inspired TSLA upgrade.

1. 12-month price target to $780 from $455

2. "We believe that the shift toward battery electric vehicle adoption is accelerating and will occur faster than our prior view"

3. "We believe that battery prices are falling faster than we previously expected which improves the economics of EV ownership"

4. "we expect that Tesla's integrated model will help it to sustain a leadership position in the EV market"

5. "We see upside to consensus estimates, and our new 2021 non-GAAP EPS estimate of $4.80 is 32% above FactSet consensus"

It is an arrow to the heart of TSLA bears but it is also the perfect narrative that the stock would "top-out" on a few of these high profile capitulations. Stock not for now breaking through nov 27th high in the pre-market.

Goldman