From all angles, the measures of buying executed over the last two weeks or so are extreme.
CTAs
This is the biggest change over ten days on record.
Hedge Funds
HFs had been shorting for fourteen weeks straight and were the least net long they had been in eleven years. Right now? Well, right into the end of the week they pulled back on the buying, but more noteworthy is the massive degrossing as both long and short legs were slashed.
As of now though, they are full send into megatech. So with NVDA earnings due Wednesday morning Aus time, what could go wrong?
Buybacks
Buyback volume had been fading, as I have previously mentioned, due to the higher rate environment, but in a stunning reversal years of volume records have been smashed.
Long Onlys
Biggest inflows since Feb '22, and only beaten five times in the last seven years.
From where I sit, hell, from pretty much wherever you sit, that is an enormous amount of fuel injected into the market. Where does it put us?
Zoomed in a bit.
So what could happen to really lock in a top as we hit the top of this pennant? What if NVDA headline is a beat, stock shoots up after market, followed by a cooler conference call which starts the unwind of the 8/10 long positioning?
I just don't see enormous amounts of buying INTO a resistance level as very positive. What I like most is enormous volume on a BREAKOUT.
Right and Wrong
Or - How to be short the equity market and at least not have your arms blown off.
The great thing about a long trading career is that you get to enjoy large doses of being right AND wrong. In the end, it's not about being right more than wrong, it's about being big when you're right and small when you're wrong. (Actually, firstly it's about being able to recognise and admit to both.)
The OED squeeze warnings were flashing a few weeks ago, and we said it. What I didn't do was trade it hard enough. What we did right was concentrate on the bond market capitulation event and use that as a high quality entry point into the bond/equity spread. We've had one short equity leg all through the squeeze, but we've had the bond long as well, so how does that look?
This is the spread represented as one index. To be long this chart is to be long the bond leg. The chart low there in late October is where we entered. We then enjoyed moderate performance until the squeeze hit and we have headed back towards our entry point. Now, in truth, I don't know which leg will drive the closure of the spread. I have my thoughts, but the market doesn't care about them.
So, while we didn't do so well trading the squeeze, I believe we have the right fundamental position, which is also less volatile than one leg or the other, which then in turn allows us to be bigger. I would also point out that this chart allows you to see other patterns, such as the emerging double-bottom-with-higher-low as we speak.
Now we see a few things starting to line up. There is an opportunity for the equity leg to be running into resistance, and at the same time the spread chart may be showing signs of constructive action. The call then? Double down and go all in on the spread. Keep in mind that you get paid while you wait with this position.
Last minute data from last night's 20yr auction indicating high demand and a sequential drop in yield. Money is coming for bonds.
How long is too long?
Here is the latest from Deutsche Bank's internal tracking of asset managers and hedge funds.
Everywhere we look we see a locked and loaded long. Probably in anticipation of NVDA earnings. Only 24hrs to wait.
Wrapping up
Sometimes, winning the argument is not the point. Remember that old bipolar girlfriend? Morose one minute, elated the next. Being happy or sad was not the point. The red flag was the instability. Three weeks ago the market was (insert inappropriate self-harm metaphor here), and this week it is literally euphoric.
I don't know if NVDA is going to blow the doors off again or not. But the market sure thinks it does. I never put a chart in the wrap up, but here goes. Last night's SPX print..
That's the elegant finish to the chart that I put in yesterday. Here we are at the top of a down channel, at a lower high, with the most anticipated earnings report of the year due, after the biggest concentrated buying spree since the last one. Up, down from here? Everyone seems to be pretty sure. Maybe I'm the idiot in the room?
Trade/Position Summary
One-eyed deer: Buy TLT / Sell QQQ.
Runner up: Sell GSR @85 (it's come in a bit).
Consider: Fade equity euphoria.