As I stated recently, the short-term indicators are lining up uncannily similar to this time last year.
Aside from short-term parallels - an entire year of global risk has been assiduously ignored, rendering year over year comparisons wholly fraudulent, except for the most denialistic of market observers aka. everyone you know.
"Good news, this is still a bullshit market"
"What a relief"
Secondly, a confluence of events took place one year ago - Davos, the Fed meeting (next week), and of course quarterly earnings announcements.
In terms of the liquidity spigot, over the next two weeks the casino is entering peak earnings season, which means peak stock buyback blackout.
But as far as liquidity reduction, this is where it gets interesting:
In addition to now suspended stock buybacks, key sources of casino liquidity are the $USDJPY carry trade, and volatility compression.
Here we see both below.
The USDJPY carry pair is nearly identical to last year, and has already flash crashed once this month (top pane). In the lower pane, we see that the volatility curve is currently sandwiched between the recent low - which was the low observed in December - and the all-important breakeven level. The VIX has been hammering the breakeven level for the past two days, attempting to breakout. A necessary and sufficient event to trigger VolPlosion 2.0:
But it gets more interesting, because the recession trade has been leading again lately - in a relative sense.
Which is deja vu of last year:
Also on the topic of draining liquidity, similar to last January, the Fed is not expected to raise rates at next week's meeting.
However, the critical divergence from last year is the magnitude of balance sheet rolloff now taking place on auto-pilot. 2018 saw roughly $450 billion of quantitative tightening - most of which took place in the second half of the year when the wheels came off the bus. Whereas 2019 is slated to see $600 billion.
Because if at first you don't implode, keep trying.
Because if at first you don't implode, keep trying.
In summary, all of the Idiocratically denialistic conditions are in place for VolPlosion 2.0, 10x edition.
And even the high is wearing off:
One year of denial later:
