In a world where only one ‘actor’ is still buying stocks, Nomura’s Charlie McElligott just uttered the three most terrifying words in the world to stock market bull:
“buyback blackout begins…”
Having exposed the multitude reasons for concern below the surface of the stock market, the cross-asset strategy MD warns we have already begun to enter the buyback blackout period, with 75% of the S&P 500 “out of the market” by December 26th (with 75% to emerge on Feb 6th).
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If you were wondering why Banks can’t catch a bid – they’ve been in the blackout since Dec 5th, followed by Transports Dec 13th and Household Goods Dec 14th
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Next week Telcos Dec 19th, Cap Goods, Software, Media Dec 20th and Pharma Dec 21st
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Following week is Semis, Autos, Healthcare, Insurance, Materials, Consumer Services Dec 26th / 27th
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First week of Jan sees Durables, Energy, Tech before REITS, Utes, Diversified Fins and Retailing at mid / end Jan
And tightening financial conditions cramping credit markets is not helping…
All of which is a major problem as it leaves the rest of the markets’ participants with no ‘greater fools’ to offload their risk to.
McElligott points out that while the trend-following CTAs have gone “max short” across global equities, they are far from any ‘covering levels’ to feed a short-squeeze…
Source: Nomura QIS
It’s also worth noting that Nasdaq is the only developed market which remains “long” – a test and break below that 6207 level would generate approx. -$20B notional for sale…
And the options market has a big problem as the ‘greeks’ have gone wild recently, with aggregate S&P delta and gamma at near-record negative levels (leaving a market very vulnerable to flash-crashes or smashes)…
SPX / SPY consolidated greeks keep getting more negative with spot, EVEN WITH calls over puts
Net overall Delta is -$506.8B (a 0.4%ile level back to 2013) and front-month -$325.3B / front-week -$228.6B with modest notional bias to upside
Net Gamma -$18B per 1% move + or – (a 1.6%ile level back to 2013), net gamma -$46.5B on a 2% move—with the size strikes that matter the most being 2600 ($5.9B gamma), 2650 ($4.1B), 2500 ($3.8B) and 2550 ($3.7B) and also a bias to the upside
All of which means we are likely to see incredibly-erratic price-action into Friday’s Quad Witch expiration and horrible year-end liquidity with dealers offering little balance sheet.
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