| SPX – getting close(r) | | SPX has bounced around 13% from June lows taking most people by surprise, and creating huge p/l frustration. The market continues doing what it does best, frustrating the crowd. On July 15 and 16 we outlined our latest squeeze logic in our thematic emails, “Bearish people do not build any 5th Av skyscrapers” and “Maybe we should not wait for that capitulation” (premium subs only, sign up here). The market has come a long way since then so where do we go from here? SPX took out the big 4k easily, but we are approaching the next big resistance area soon. 4150 is a level to watch, as well as the 100 day moving average coming in around the 4120 area. If those are taken out, the 4200 is the big one to watch. If this is just a bear market rally or not is to be seen, but one thing is sure, becoming greedy is not how we like to trade this market. We are getting closer to the point where one should think about offloading some longs to “desperate” buyers… |  Refinitiv |
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| NASDAQ – welcome to resistance watch | | Believe it or not but NASDAQ is up around 15% from recent lows. We are approaching the first big resistance area, May highs at the 13000 level. Note the 100 day is right here and the longer term negative trend line “slightly” higher. Time to watch these resistance levels carefully and plan to take some chips off the long table… |  Refinitiv |
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| Seasonality – thank you for playing | | In late June/early July we pointed out the seasonality effect in our post SPX – it is supposed to bounce here . The bull played out well in the end. There is probably some more room to move higher as CTAs, vol control funds etc need to chase this rally, but July is soon over and August is not the month to be very long, at least not from a seasonality pattern. First chart is Scott Rubner’s “classical” chart with the longer term pattern since 1928. Second chart shows seasonality over the past 20 years. |  GS |  Equity Clock |
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| Time to plan the hedges | | Equity vols have come down sharply as markets have squeezed violently. VIX is still not “dirt” cheap, but the most recent vol reset has created relatively interesting hedging set ups. Here are a few “quick hedges” to consider: 1. you rode the squeeze higher, starting to feel a bit nervous but want to keep some “optionality” should this continue higher – look at replacement strategies, i.e sell longs and enter upside calls or call spreads. You will lose some of the shorter term upside potential but optionality will kick in should this melt up further. 2. want to keep longs but “insure” the portfolio – VIX has come down sharply, but also skew is still at rather low levels – downside protection has not been this cheap in a while…outright puts/put spreads or why not look at risk reversals, selling calls to finance downside protection There are obviously many more ways to hedge than the above and it all matters on what view you have, what risks you want to hedge and how you want to structure the hedges in terms of costs. |  Refinitiv |
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| Greed & Squeezes | | There are many ways to skin a sentiment survey…..The main conclusion of this one is of course that even though we have bounce off lows we are still far from “greed”. Another, more “bearish” take would be that we have now bounced exactly as much as we did in the March equity squeeze (and now we are talking in terms of sentiment reading). Maybe the level is less relevant than the actual magnitude of the move in the survey? |  CNN |
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| Squeeze history: beware of the 4th one | | The 4th squeeze of the GFC bear market was more than double as strong as the previous 3 and took SPX 18% higher. The 4th squeeze of the tech bear market was more than double as strong as the previous 3 and took SPX 21% higher. |
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| Bear markets rallies become bigger | | Kantro: “Bear market rallies become LARGER the LONGER the bear market goes on. The 4th BMR is now the biggest of the bunch. Where is your exit point?” Chart not updated to the pre-market rally of almost 2% |  Kantro |
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| Never forget the fundamental problem | | During the previous 8 bear markets, the Fed responded with easy money (rate cuts, QE, etc.). This year they’re doing the opposite, hiking rates & expected to continue hiking for the rest of the year. |  Bilello |
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| Blame options | | The YOLO stay at home options flow is gone, but there are still “disproportionately” huge options flows that continue to haunt dealers and create erratic moves in this market. Goldman’s Tony P reminds us: “…in recent weeks, upwards of 40% of daily SPX option volumes have an expiry of … less than 24 hours.” This creates big hedging dynamics and hard to manage gamma risks as this is basically trading expiration every day (gamma for dummies here). Add to this horrible liquidity and you understand why moves are causing a lot of pain. Reshuffling big books is pretty much impossible. |  GS |
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| 1982 moment (Thriller for the bears) | | “.. disinflation tailwinds strengthening .. we think this is turning out to the be an August 1982 moment,” when stocks “recovered the entire 36 month bear market loss in 4 months .. that is why we think S&P 500 could be >4,800 before year-end ..” |  @fundstrat |
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