Friday, February 9, 2018

In Wall Street We Trust

Those who didn't learn their lesson in 2008 are about to get a second chance...

This is what happens when overnight risk, conveyed from the rest of the world, is ignored and instead bought with both hands. Realized volatility is the highest since October 2008:

The S&P just bounced off of the 200 dma at 2539. When that breaks, look out below...

A shorter-term view:

Any questions?

Cascading waterfall crash in progress...

Friday close:

The difference between 2008 and now is 'BTFD'. Which is why the casino is nowhere near "bottom"...

It's clear that Skynet is losing control over the casino. The overnight futures bear no resemblance to how the market is trading by the end of the day. Liquidity is minimal and realized volatility is maximal. This week saw the largest outflows in history, only one week after recording the largest inflows in history:

The casino claimed multiple casualties this week - among others momentum speculators, but the highlight being the short volatility trade. As we see in the first chart above, realized volatility has now reached Lehman 2008 levels. Last Thursday, Zerohedge reported the largest ever fund flows into the XIV short volatility ETF, of a "mere" $520 million. Three trading days later, the fund was shut down. Meanwhile, the CBOE options exchange got monkey hammered this week, due to guilt by association aka. "loss of revenue":


Other notable casualties were momentum speculators. In particular, China Tech stocks got monkey hammered back below the support line from last Fall:

The other major reversal of fortune was in oil prices, which declined -10%.

The real carnage however was felt in the Energy sector which got shellacked deja vu of 2014:

Consumer Staples warned all week that this is the end of the cycle:

The massively overcrowded Treasury short fake reflation trade hit a brick wall, as rotation from stocks back to bonds accelerated. The dollar was not fooled by fake reflation. And now sits at a critical juncture:

Likewise, the high beta reflation trade - Banks, Transports and Energy got pole axed, losing four months of gains in two weeks:

The rest of the world is ready to transmit more overnight risk via the S&P futures...