Market Dashed and Vixxed

Vix of Vix, VVIX, continues diverging from the VIX. From our early December note:

"Interesting to note is the clear "structural" bid in VVIX that has been going on for years and has accelerated during 2019/2020.

This together with poor liquidity and poor "market structure" is not a great long term development."

Watch these two closely, especially as most people see boring for longer…

Refinitiv

You need to look beyond the "simple" view of VIX. VVIX is one of those "deeper" looks that at times can explain more of the underlying dynamics. Discussing volatility of volatility is a long conversation, but part of the "structural" problem in vol world is that VVIX is addicted to Fed's juice, and not expanding it quick enough becomes a problem.

Refinitiv

Last time VXN moved higher was post elections, but note back then people were obsessed with selling premium, so despite the sharp move lower in NASDAQ (much bigger than today) VXN was relatively calm.

The early September "crash" in NASDAQ saw VXN move higher initially, but despite NASDAQ selling off big time back then, VXN was sold (remember the gamma whales on the way up driving up tech volatility).

Note the move in VXN today. Looks like not everyone is so calm when it comes to tech risk these days…

Refinitiv

The SPX 1 month 25 delta risk reversal remains rather elevated, basically means that people are not paying up for downside puts relative to upside calls.

Put in another way; if you want to hedge, puts relative to calls trade relatively inexpensive.

Spotgamma

So far nothing huge, but watch this closely as we have not seen it shift higher in ages.

Today compared to yesterday.

vixcentral

One of the bets could easily turn into several bags…

Refinitiv

NASDAQ vs Russell ratio taking out recent lows as NASDAQ volatility explodes, +14%.

Note the crashing 3X leveraged QQQ ETF, TQQQ. Lot of damage in tech space today (chart 2).

Vaccines, rotations etc, but tech is still what matters. We have not had this type of concentration in one sector ever. It all works well on the way up, but can quickly change (chart 3).

Refinitiv

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And is not even Powell. JPM sees a much better supply/demand outlook for equities in 2021. Take it away Nikos:

1. For 2021 we see an overall improvement in equity demand of around $600bn relative to this year. This projected improvement is driven by retail investors as well as SWFs and Risk Parity funds.

2. At the same time we expect that global net equity supply will return next year to the very low levels of 2016-2018, i.e. a decline of $500bn relative to this year, as share buyback/LBO activities normalize and the need for equity raising subsides.

3. Adding up all the projected equity demand changes between 2020 and 2021 and subtracting the supply change, we come up with an equity demand/supply improvement of $1.1tr in 2021 relative to 2020.

JPM Flows & Liquidity

Goldman reminds us that from a fundamental view-point there is actually somethings still called "downside" and "risks", even in holier-than-thou names like AAPL.

GS: "we want to flag that our channel checks indicate a higher mix of iPhone 11s in Europe than is typical in a new launch cycle and certainly in a once every three year redesign. We see this as supportive of our cautious ASP view for 2021 which is a key part of our Sell thesis on Apple. We also note large carrier subsidies as we had expected in the US that may not persist beyond the holiday season". GS has a Sell rating and 40% downside to target price

Refinitiv

Looks like DXY down is not boosting the number one debasement trade according to many, long Bitcoin.

As we have been pointing out for a week now, Bitcoin has delivered no returns/losses for the long crowd lately and tons of volatility. This is not what people like. The parabolic trend has got many greedy, and a story that did receive little attention was MSTR's plans to raise $400mn to buy more Bitcoin.

If it was that easy, guess everybody would do it…

Anyway, the last batch MSTR bought last week is down some $3.5mn here. As we wrote over the weekend:

"…but you have to master managing risk, ie what is your plan of action if the trade goes further up, or starts moving lower?"

BTC has a steep trend right here, next levels if it breaks below is the 50 day at 16200. 200 day moving is down at 11900.

There is nothing wrong with volatility, but you need to know how to manage it…

Refinitiv

Short term momentum for Bitcoin is not looking great, and CTAs live to trade short term momentum, irrespective of direction. As we at TME have been outlining over past two weeks, Bitcoin has had a huge rally, but even more important, volatility has increased (as well as greed). There is nothing wrong with high volatility if you can manage it, but most have no clue how you manage high volatility from a risk management point of view. Given the fact momentum in Bitcoin is rolling over and elevated volatility still persists, momentum chasers could magnify the downward momentum should we get more aggressive px action to the downside.

Do not confuse short term momentum with the longer term "USD debasement" logic and institutional long term buying (this is investing, not trading).

As JPM outlines;

"…unless the bitcoin price resumes its uptrend quickly rising above $20k, its momentum signal would mechanically decline further over the next couple of months or so, as the comparison with the past becomes less favorable."

JPM

The lack of super-mega cap stocks in Europe is of course well-documented. One has to go all the way down to "mid-sized" market cap of give or take $300bn to find the biggest European stocks (Nestle, Roche and LVMH). Speaking of LVMH – one has to be impressed by the defensive nature of luxury spending, at least for the top brands that LVMH controls. Sales for "fashion & leather" and within top brands LV and Dior are hardly down in 2020, massively outperforming "the sector" and also expected to grow >10% per year for the next 3 years. It is not tech, but it is the "shiniest" Europe's got. Stock up 300% in 4 years….

Goldman

We never attended the "charting wedges 101" course, but is this a big one in the making?

If "true", SPX is starting to look rather "trapped" up here, but has more room to develop if the wedge is "true".

Refinitiv

TSLA Shares +808% vs Dec. 2018 but consensus EPS actually has moved lower. Great stock if you were a MoMo price investor – horrible stock if you were an earnings MoMo investor. Chart shows evolution of Bloomberg consensus EPS for 2020 and 2021 from 2012 through today

Bloomberg

Only 300% higher than average….

JPM

Now 7-day moving average passed 200.000

COVID tracking project

The risk of more stringent anti-virus curbs remains elevated, with the third wave proving stubborn. 

Pantheon