There is one thing that matters. Fed’s BS remains the driver of all assets…
Refinitiv
So many ways to show the Central Bank balance sheet enormity….FED BS to hit 42% of GDP
BoAM
BofA notes that past 12 weeks has seen the largest inflow, total $255 bn, to stocks ever. Is everybody all in now?
BofA
Below a few DeMark charts via Hedgefundtelemetry worth reviewing, all flashing that famous DeMark 13 signal…;
“S&P Daily on day 12 of 13 with Sequential sell Countdown 13. This might come tomorrow if above yesterday’s high or next week some time.
S&P 500 weekly has the potential to lock in Sequential and Combo sell Countdown 13’s this week.
NDX Daily with the Sequential sell Countdown 13 as I have been anticipating. At the upside DeMark Propulsion target too.
QQQ Daily with the Sequential sell Countdown 13.”
Vols bid on a Friday and everybody still talking the rotation narrative…
BofA’s bull and bear indicator remains THE indicator as it has been in “buy” territory during the entire run up. It recently “flipped” to red, indicating a contrarian sell signal. Note we are printing 7.2 from last week’s 7.1, and last Jan we topped out on 7.2…
When Hartnett speaks you listen. He sticks to his “peak positioning and correction Q1” logic.
BofA
JPM delivers a slightly different picture to what GS stated earlier this week. Vol targeting funds are running low equity exposure as vols have not “reset” fully. They basically argue there is much more re-leveraging to be seen by these strategies as last years’ vol shock “ebbs” out (we must not get a new one….).
Second chart shows net exposure with global hedge funds’ net exposure remains rather low, so more room for these people to re-leverage as well.
We saw options trading become the hottest thing in trading in 2020 and the trend continues. The crowd has gone from trading stocks to trading options, in size. As Chris Cole of Artemis pointed out in 2020, “the stock market has become the derivative of the options market”. Everybody is all in trading options, but few understand what they actually trade, at least not all the retail punters (and actually not many portfolio managers have a clue abut options trading) . People that have never traded a “real” vol book write about gamma, vanna, charm and other exotic greeks, but you need to have experienced exploding gamma risks etc in order to truly understand how options work. Have you ever been long downside puts that were “booked” at zero (no delta), and then suddenly the stock profits warns and tanks 20/30%, or worse, short downside and the company profit warns on expiration day? That is “practical” experience from gamma holes and much more.
The technological development has made options trading accessible to everyone, and Fed’s actions spilled over to the bubble that has fed over to all these new retail options punters. There is absolutely nothing wrong with options (we at TME have traded them for 2-3 decades), but nobody has seen the explosion of options trading like we have seen over the past year, and it ain’t stopping.
Below are the top three charts showing current options mania;
1, total options volume surging and single name calls over puts at multi decade highs, 2, not only do people love calls and hate puts, but as we showed yesterday, selling naked puts seems in fashion 3, the “dispersion ” of options volumes across single stock and index level and finally flows matter more than fundamentals…
(For educational purposes grab Natenberg’s classical book on options trading, and for the more complex stuff read Taleb’s “Dynamic hedging”).
We are seeing the Citi US eco surprise index “surge” higher for the first time since the summer. Yes, a lagging indicator, but there is a lot of caching up to do. Many PMs look at this one and base their “fundamental” views on it, so watch it carefully over the coming weeks….
CESI vs SPX.
Refinitiv
US large cap bank results commentary from management teams at GS, JPM and C highlighted that deal pipelines across investment banking were strong, and M&A should remain active given strong CEO confidence. Dialogues remain robust, and both SPAC and strategic corporate M&A activity should drive a strong 2021, which is in line with MS Research call that we are at the start of a new M&A cycle. MS Research expects industry deal announcements up 11% and completions up 28% y/y in 2021.
MSTR keeps adding to the bitcoin long. Bullish or bearish bitcoin, but Mr Saylor has not only made a great trade, but has seen his 24% stake in MSTR beat bitcoin by miles since he bought the first chunk of bitcoins in August.
Shareholder value does not get better…at least not when it comes to prop trading.
Refinitiv
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