JPM equity strategist is a little less bullish in the very short term: "Some technicals are starting to appear near term toppy. Investor positioning and sentiment does now appear short term stretched, post 20% SX5E and 40% SX7P rally since the start of November, with betas at highs, short interest at lows, and AAII at highs, too. This could be a near-term headwind for performance". Medium and longer-term view however unbroken: bullish.
Mislav Matejka
Goldman pointing out that equity positioning is extremely stretched and that when it is this stretched, stocks do actually go down over the next 1-4 weeks. The GS "Sentiment Indicator" is at +2.0 standard deviations above average, which represents a 98th percentile reading since 2009. This stretched positioning has been a headwind to equity market returns in the subsequent 1-4 weeks – which could mean that year-end rally will get cancelled. GS continues to note that the market has reached their year-end target of 3700 and that absolute valuation is high compared with history with the forward P/E at >21x. However, for the longer term horizon they are still uber-mega-ultra bullish (year-end 2021 target of 4300).
Nordea notes that gold has had strong seasonality from December 13 and the middle of the first quarter, +4.7% on average with a 76% hit ratio.
(On the other hand, that is what BTC moves in an afternoon…)
Nordea
We are seeing the first bullish candle in the DXY in a long time today. On Friday we outlined DXY had done most of the short term move and we suggested:
"DXY thank you, but time to move along…"
Let's see the follow through today, but DXY is hated and people have reloaded dollar shorts lately (chart 2).
The implosion of the DXY has been important for S&P. We are not calling a huge reversal in the dollar imminently, but the dollar moves a lot of assets beyond the dollar itself.
DXY inverted vs S&P futs.
Refinitiv
Another huge consensus trade is that further dollar weakness will fuel the EM bull. The problem with all recent dollar related "ideas" is that the crowd has been late in understanding the early dynamics and have all piled into the trade way too late. As we reminded our readers on Friday;
"The most recent DXY implosion has fuelled a lot of the latest EM bull. Frequent readers of TME know that the most preferred logic was looking beyond the EEM. Brazil has been one of those assets to watch. A dog that turned a star pretty much overnight.
As a short term "inflection" point set up a lot of the DXY plays have delivered impressive moves, but time has come to think about the risk for possible pullbacks given the moves."
Looks like UK is reminding the world just how messy Europe is, translating into stronger bid for the dollar, derailing a lot of late Emerging markets bull dreams.
Refinitiv
As we wrote earlier today, BOJ is now the biggest holder of Japanese equities according to Bloomberg (third biggest stock market in the world). Not overly surprising. Latest speeches by BOJ policy board members seem to be hungry for even more of the same..
Below excerpt from Hitoshi Suzuki on sustainable and flexible monetary easing:
"Given that it is expected to take more time to achieve the price stability target, due in part to the impact of COVID-19, I think it will become even more important for monetary easing measures to be sustainable and flexible. Given that monetary easing is expected to be further prolonged due in part to the impact of COVID-19, the Bank should look for additional ways to enhance the sustainability and flexibility of the policy measures so that it will not face difficulty in conducting ETF and J REIT purchases when an appropriate lowering of risk premia of asset prices is absolutely necessary." (Speech to local leaders in Fukushima, via webcast, 3 December)
That Nikkei break out we wrote about in mid October remains one off Kolanovic's autumn top calls according to us.
Refinitiv
SPY is pretty much at max long gamma territory, so any "bigger" move will be neutralized, especially if there is no narrative strong enough. Several big inv banks, latest one is GS to join the "rally should take a pause", pushing similar views, but all saying to buy the dip. Imagine the frustration if the dip doesn't happen yet…
Spotgamma
Usually when we start speaking of "paradigm shifts", things tend to revert…
The pre dot com era was driven by a paradigm shift until it all crashed. Recent call relative mania has been extreme, but we have seen similar "spikes" earlier, without it being a paradigm shift.
What is it now?
MacroCharts
The best monthly return for global equities and selling front-month VIX futures in decades argues for a pause in the vol decline. Morgan Stanley Derivs: "We are still a seller of volatility across most asset classes but see select opportunities to be long vol opening up… "
Morgan Stanley
Brazil has gone from the absolutely biggest dig to the shining star of EM space in a month.
IN our early November post, Can dogs squeeze (#1) – Brazil, we wrote;
"A not totally unrealistic scenario into year-end if global markets stay ok is that sectors, themes and countries that have been the absolute dogs in 2020 will try to stage a catch-up squeeze rally. Let´s look at a number of these dogs. Worst performing equity market is of course Bovespa…"
Fast forward a month and here we are, EWZ having outperformed pretty much everything, but note we are getting right into the huge resistance level at 37. Chasing Brazilian assets here is a late trade, period.
Refinitiv
Remember the August mania with FAANGs as the top news every day, gamma whales, retail buying tons of call options etc?
Let's see, maybe people rediscover "real value" soon as it takes out new ATHs today.
NYFANG index.
Refinitiv
…. another new record. Averaged across the last 7 days, each of the core metrics is at record levels.
COVID tracking project
US deaths and hospitalizations: pandemic still raging. (numbers are 1w averages)
Macrobond
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