top of page

Speed wobbles.... One Eyed Deer Blog 6th December 2023

We are seeing a statistically rare cluster of major volatility events across multiple assets. In just the last few days we have the biggest breakout/failed breakout for gold, and the worst two day performance ever for hedge funds.

This theme kicked off a few weeks ago with the enormous bond capitulation event, then the euphoria of the latest NVDA earnings release which capped off the largest reversal in equities in years against the backdrop of the largest easing in financial conditions in 40 years.

Keep in mind that all of this is occurring under the umbrella of the slightly longer timeframe event that is the fastest rise in interest rates ever.

Let's throw in the largest change in CTA positioning on record.

A lot of superlatives there, but not so surprising if we stick to our underlying thesis of the difficulty in unwinding decades of monetary madness.

How to position within such volatility?

Small, nimble money can trade the flows. If picked correctly the returns are outsized, but of course the opposite is true if you are caught wrong footed. We will do this where we feel we have an edge, but when putting larger amounts of capital to work it is prudent to avoid the likelihood of damaging moves and be somewhere that fundamentals can play out over time with less noise.

Let's examine our two core trades through the recent upheavals.

Bond/Equity spread.

We entered this spread at the October low, which has been retested, and now see it breaking through the first moving average and looking generally constructive. This position also generates positive carry so will pay as we hold. No obvious signs in the daily returns of the extreme behaviours witnessed across individual asset classes.


Again, the entry point seems robust and the position has pushed away from there with little flow through of the general market malaise.

These are the types of behaviours one would like to see from a fund's core position when seeking to maximise Sharpe ratio and trade in very liquid underlyings that can accommodate significant size.

Fear is dead, again.

We seem to be playing a loop over and over again. Market gets very long, while at the same time rejecting protection, after which market fades, everyone gets short and buys protection, causing massive short squeeze, repeat.

Perhaps, if you want to be long with the crowd here, at least, I don't know, protect yourself with some cheap vol hedges? Our trade remains the selling of VIX puts. This is a very baseline type level for VIX, and as good an entry point as any. AND VVIX is rich compared to VIX, suggesting the premium you get for the VIX options is relatively elevated.

One we're looking at..


First, we look at the drastic underperformance of HSI vs SPX and see the gap open up. Of course this could be permanent, and is caused by myriad factors, not the least of which is the possibility of significant capital flight out of China. Correlation here is not a given.

Then we look at the ratio as an index. Note here the similarity to the TLT/QQQ index we built, when it was going through the bond capitulation. Again, not all the same information is available here. Is there an extreme volume event concurrent with the accelerating price action? Not really, from what I can tell. The accelerative nature of the price action is worth looking at though. We are going to trade some, but for you I would rate it a consider at this point.

Wrapping up

The speed with which I seem to be reverting between noting that the market is very short, then very long, then back again, seems to be the fastest in my almost forty years as a market participant. This can commonly be called speed wobbles, and if you grew up riding a bike instead of playing Fortnite, then you know where that inevitably leads.

One-eyed deer: Hold the core: TLT/QQQ, GSR

Consider: Fade the euphoria, again.


16 views0 comments


bottom of page