3/11/25 Live Trading Room Market Recap & Trades
MECHANICAL FLOWS
Levered ETF Rebalance is in the 1%tile, according to Nomura:
The sell-off in equities has been partly driven by "mechanical" flows: CTAs have gone from running big longs to now running shorts in the US. Dealers have gone from long to short gamma (from dampening to magnifying moves). Leveraged ETFs have reversed buying into selling. All this has occurred in a market where liquidity has dried up. All the above are purely mechanical flows and have exaggerated the move lower. via TheMarketEar
Mechanical flows had been supporting equities, but now are suppressing them. Are we close to a bounce?
The other side of that trade is MS QDS estimates:
"~$40 to 50bn of global equity supply from systematic macro strategies"...a deceleration vs last week, but still "chunky"...but this is still pale compared to projections should leverage come down to levels we saw in 2022...that would lead to "another $225bn of supply from this group". Note volatility controlled strategies would be the biggest sellers.
Translation: I’m on the lookout either way!!