3/6/25 Live Trading Room Market Recap & Trades
Just Flush It Already
“Volatility is rising - selling is not done.”
Me, every day, for weeks now.
Seriously market, stop teasing us: Flush it already! I’m tired of saying the same thing every day since warning clients Wednesday Feb 19th that the US-JP rate spread differential (among other indicators) was about to fall dragging equities, yields & oil lower. Nasdaq 100 has since pulled back 10% to my $487.20 price target.
And yet… MY VOLATILITY READ IS THAT VIX HASN’T EVEN SPIKED YET!
But the more time that VIX stays ‘under control’, the more time folks can position with puts and then potentially VIX won’t spike like we need it to to allow a nice #BuyTheDip set up! Grrrr.
Intraday, we’re volatile:
And dealers are clearly short gamma and have been short gamma:
And hedge funds have been dumping:
Best quant assessment that mirrors mine is from The Wizard of Ops:
“Despite this volatile drop over the past couple of weeks, we have seen overvixing, but we have yet to see a vol event (VIX rising 2 points more than spot-vol correlation would indicate).
The current spot-vol correlation is .82 VIX points for every 1% drop in SPX, so if SPX drops 1%, I’d want to see VIX rise by 2.82 points for a vol event. It signifies capitulation and illiquidity.
Our study shows that when this happens, it reaches the prior day’s close within three weeks, essentially indicating it is all clear to buy the dip. This isn’t to say a bottom can’t form without a vol event, but it just would be nice to have that confirmation.
Just Flush It Already!
The headline risk is unreal: on/off /on/delayed/reduced tariffs. Not to mention the Trump posts on the Ukraine drama with on/off/on/off peace talks. Oh, don’t get me started with on/off/reduced power of DOGE. Supreme Court didn’t uphold the USAID cuts or freeze in foreign aid, and the govt labor shedding that has been large is being contested as a civil right lawsuit in the making. Consumer and Corporate confidence has fallen off a cliff, and many worry economic data will soon follow.
Seems the controlled market selling mirrors the controlled recession the admin is shooting for in an attempt to lower the value of the dollar, yields and oil - before building the economy back up at some future time.
Until then, market systematic supply is on the hairy edge:
"As the market continues to go lower and future forced systematic supply builds, many are asking how much more there is to go.
Macro systematic length coming into Tuesday was in the 80th %ile versus the last 5 years, so the answer is a lot: at -2.2% in SPX QDS is forecasting nearly $100bn for sale over the next week.
If leverage was to fall to the lows in Aug 2024 there would be an additional $100bn of supply ($200bn total).
In a return to the leverage seen in the 2022 lows there would be an additional $150bn of supply on top of that ($350bn total)." (MS QDS)
Nomura’s McElligott piped in yesterday with a view that matches my warnings:
The Trump administration may need an "engineered recession" to drive disinflation, justify Fed rate cuts, and weaken the USD for "phase 2" of its vision. A "negative wealth effect" from falling stocks and crypto could support this goal.
Any "Trump Put" in equities is likely far OTM, not ATM.
Markets are aggressively shorting, and no speech or statement can reverse sentiment unless Trump fully backs down on policy.