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OED Short - 6 October 2023

Updated: Oct 9, 2023

Thoughts into Friday’s job’s numbers.

Whilst we here at OED are bearish, it is not lost on me that it is a well telegraphed and popular position amongst fast money.

With the SP500 picking up the 200DMA and NDX at a juicy neckline, it will be no surprise if some aggressive short covering springs to life in the very near term. The looming earnings period will also have people biased towards looking for upside surprises.

We have, indeed, adjusted our book to give us ammunition to fade a short covering rally, while at the same time keeping exposure that will expand to the downside if and when things break down.

I expect markets to at least rally into the Friday data release. Shorts will not be adding and the hope among the gambling crowd is that we get a catalyst to jump. This should see a creep up into the number. If that gets carried away then it sets up a reasonable fade on an uninteresting number.


Two out of three chances?

A light number will no doubt spark some covering, but the extent will be determined by the size of moves in the credit market. If rates don’t move, then equities are forced to continue to digest the new paradigm of 4.75% in the tens. This must be tasting pretty bad by now, and getting more pungent every day it hangs around.

So with rates steady or higher, then equities continue to be under pressure. Only some relief in rates will get equity markets excited again. Looking at the recent trend in rates in the attached chart, it is interesting to note that significant moves such as the most recent aren’t really punctuated with meaningful quick reversals. Even if they do find relief it is usually after some time.




A hot jobs number should start the slide all over again. There are more stories emerging of big money under duress, and forced liquidations are looming. I also attach a recent interesting chart showing bond call option positioning. The participants here are getting super long a bounce in the 20y fund. That doesn’t scream bottom to me, and the fact they are using options might also speak to second tier levels of conviction.




I think we have a market hopeful for a bounce, with a lot of bears leaning on it. Fun times.


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