VIX 2/8 months spread spiked higher today. The spread has collapsed lately, but it is still wroth noting the relatively big move in the spread today.
It did not take much for people to start grabbing some short term protection.
Watch this spread closely here for overall clues.
Refinitiv
Nikos, the Flow-Show God at JPM shoots an arrow through the heart of the last of the Mohicans. It sounds so easy and good and consensus but it might still be right…
1. Gradual decline in uncertainty from the very high levels seen before the US election would likely amplify equity and risk markets going forward by reducing the need for precautionary savings over time.
2. This means that a greater portion of the liquidity that has been injected so far as a function of QE and credit creation, would be deployed into higher yielding non-cash assets such as equities into next year.
3. Indeed when we update our fair value model for the S&P500, we find significant upside for equities into 2021
JPM
"2021 could be the year when it may be equally important to look at the possibility of the right tail. Across global markets, EM assets embed most tangibly a combination of (i) cyclicality, (ii) commodity exposure, (iii) China sensitivity and (iv) pockets of deep value, all of which could be in favour through the course of the year. If these tailwinds come together all at once, and given low positioning and a friendlier US attitude towards global trade, EM outperformance may be more sustained through the year"
Chart: Relative valuations are favourable across EM compared with starting 2020 levels
Goldman
If there was a bear case for vaccines from here surely it would be articulated from an anti-body manufacturer. Below 2 points from VIR management:
1. the real-world efficacy rate is likely to vary from the headline figure reported, and the inevitable distribution and uptake challenges suggest that COVID-19 will remain an issue until herd immunity mounts or perhaps may even become endemic similar to the seasonal flu
2. we have yet to see how vaccine efficacy rates breakdown across populations, and note that there may still be a need for certain groups including the elderly where earlier trials noted a lower rate of injection site reaction that might be indicative of a lower vaccine response in these subjects in general.
Lot of buzz on the reflation, rotation trade, but not so much supporting px action when it comes to the US 10 year. After hitting the upper part of the range post the Pfizer news, US 10 year has been fading.
We are now back to trading at pre that early November move lower in yields…
Refinitiv
The move lower in US 5 year breakevens since October highs is actually the biggest cumulative move lower in inflation expectations since the world got Corona.
Not part of the equities bull story at the moment, but watch this closely.
Refinitiv
Small caps have outperformed most major indexes lately. Tech is so out of fashion compared to Russell. As we pointed out earlier today;
"There have been 22 occasions when IWM has rallied at least 13% in 10 rolling trading sessions."
Russell is discounting the rotation/reflation trade rather "violently" at the moment, while inflation expectations seem less bullish this trade.
Watch the recent gap having formed…
Refinitiv
Things are different this time, we know much more about the virus, and it is an known unknown this time around. Markets now price it as a "one off" should things turn sour, but we would still like to point out a few similarities.
Upcoming expiration is rather big and several things have pushed to new highs recently. Cases are exploding, and (even) US is locking down more and more.
Interesting to note is that the QQQ/IWM ratio exploded to the upside as markets tanked post the Feb expiration. The ratio has now "tanked", since NASDAQ topped out with that Apple hanging man candle we pointed out in early September.
Despite NASDAQ under performing since early Sep, NASDAQ vol has come off more than Russell vol, where we are seeing VXN trade "well" below RVX over past sessions.
Watch the above dynamics should we get even a slight February set up playing out, at least as a relative play…
Refinitiv
Bull heading: "Time to value Tesla's software & services business". Price target upped to $540. Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high margin, recurring software and services revenue (platform users x ARPU). The car business is the entry ticket to unlocking much larger TAMs. MS research sees ~22% upside to PT, ~142% upside to bull case.
Refinitiv
InsideEVs reports EV october sales of EV cars in Germany. They note
Brands that recorded the highest number of plug-in car registrations were:
Mercedes-Benz: 8,565 - 489 BEVs and 8,076 PHEVs
Volkswagen: 8,311 - 5,028 BEVs and 3,283 PHEVs
Renault: 5,385 - 5,020 BEVs and 365 PHEVs
Audi: 4,658 - 1,230 BEVs and 3,428 PHEVs
BMW: 3,981 - 1,196 BEVs and 2,785 PHEVs
smart: 2,441 - 2,441 BEVs
Hyundai: 2,238 - 2,061 BEVs and 177 PHEVs
Porsche Taycan had a record 373 registrations. Tesla noted just 252 registrations this time (37 Model S, 44 Model X and 171 Model 3). Polestar 2 was at 174"
Interesting considering recent TP increase and subsequent share price increase.
Refinitiv
CL 12 mnth strip hasn't done much since June, up about $1.60/bbl or +3.9%, shape is still contango, ironically the curve was almost flat in June, about the same time the demand recovery hit a wall, the only tell from the term structure is the same signal from money flows, fundamentals and technicals …we are stuck…
MPAS
Ahead of the upcoming end of month OPEC meeting, oil traders are "scared" for the downside, with normalized 3m put/call skew on WTI close to all time highs (ex the spring craziness in oil).
At the same time, energy investors (XLE), seem very relaxed about the downside, with the 3m normalized put/call skew at all time lows.
In short, investors in XLE are much more bullish than oil investors post the elections and the positive vaccine news narrative.
We had energy as one of our top "Can dogs squeeze (#6) – Energy" calls in early November. Given the above, why not use some options plays to "hedge" a little of the XLE ramp up. After all XLE is +37% from late October lows…above the 200 day in pre market for the first time since January…
Weekly put call ratio remains depressed, and the 1 month 25 delta risk reversal showing very little relative bid for puts.
Hedges are becoming cheap(er)…
The crowd has been loading up on risk lately. Narratives are not strong, liquidity is low, so we guess they can push this even further, especially if we can reignite some options upside action…
Below chart is nothing for the short term trader to focus on, but worth keeping in mind…
Pictet/Julien Bittel
IWM is up 85% from the March panic lows and is the new king performer. Everybody suddenly loves small caps.
Maybe the rotation has just started, but this space is becoming rather overbought. Bullish or bearish, you should probably ask yourself if there is a better entry point?
Refinitiv
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