Concerned about the dramatic market moves since the start of the new year, and especially in recent days? You are not alone, but as RBC’s head of US cash equities S&T Charlie McElligott, says fear not: everyone is in a “sell (or short) now, ask questions later” mood as wholesale derisking has gripped the market and nobody really has a clue what is going on except for one thing: the most popular, crowded trades are getting blown up at a ferocious speed, as “some leveraged players outright taking grosses down by selling longs and covering shorts; while others are focused on taking net exposure lower, selling longs but adding selectively to shorts.”
From RBC, Charlie McElligott, Head of US Cash Equities Salestrading
THAT WAS FAST
Seeing relief off lows but fading again, as thematically we just saw essentially ‘the’ crowded ’15 macro trades come unglued on obvious unwinds: long stocks (SPX -1.3%, Estoxx -2.3%), long HY (HYG -0.2%), long Dollar (DXY -1.4%), short UST (+0.4%), short VIX (+6.5%), short crude (+5.1%), short Euro (+1.4%) / Yen (+1.8%) / EMFX (+0.5%), short copper (+1.9%)…all going wrong-way.
Plenty of attribution going around, first being portfolio de-risking as performance for active-types (read: humans) has just been brutal.
Others are re-treading the idea of ‘petro-state’ selling of liquid assets in light of the crude harsh fade from just 5 days ago. I would posit that the violence (“price insensitive”) and synchronized nature of it looked quantitative in nature.
Single-stock world shows somewhat similar picture as broad macro, with popular shorts and longs trading-backwards generally speaking, although pockets of shorts continue being pressed. Check-it:
The mixed-bag on equities short-side could be rationalized: some leveraged players outright taking grosses down by selling longs and covering shorts; while others are focused on taking net exposure lower, selling longs but adding selectively to shorts.
The second bullet jives with MS PB, which went out with this #HOTTAKE earlier:
Yest was one of the largest global net sell days over the past year and the largest sell day of 2016 so far, a 2.5 standard deviation (SD) event. L/S funds were the main sellers as they BOTH sold longs AND added shorts.
One final point worth considering at this juncture in the day: the final 30 minutes of the European session has been particularly noteworthy of late for extreme volatility, as correlation desks gamma hedge with ZERO tolerance for pain—especially after many large banks ‘over there’ noted equity derivs hits in the quarter numbers.
via Zero Hedge http://ift.tt/1JYtKaZ Tyler Durden