Toto.

Well good news!

It looks like that last-minute panic bid on Friday had some legs, goddammit.

I don’t know what you want to make of Monday’s action. I’d be inclined to say it’s still difficult to sort through the noise, but then again, it was green pretty much all day today as opposed to the wild swings we saw on Friday. No stick save catalyzed by a rumor about the end of CTA/risk parity selling was necessary. As Bloomberg notes, “nearly 90% of S&P 500 stocks rallied after 82% of stocks in the index advanced  amid  Friday’s  turnaround.”

 

Of course it could also be that everyone is just sitting around waiting on CPI and in the meantime, they’re buying on the assumption we’re oversold.

Whatever the case, stocks were sharply higher across the board with the Dow up more than 400 points. Just to give you an idea of how much the regime has changed, have a look at this:

“Ummmm Toto?”…

 

Hopefully you were ready for things to get interesting. Here’s that chart with the Dow:

You’re reminded that Monday’s gains comes after the biggest weekly outflow from SPY in history:

So as quickly as it comes in, it can come out. Which certainly seems to suggest that passive flows have the potential to exacerbate a selloff just like all the other “boogeymen” that were shouldering the blame last week.

The VIX dove to a 24 handle on Monday which, as a reminder, would have seemed nuts just a month ago but now it seems like lake placid compared to last Monday:

For whatever this is worth, Goldman notes that “in past volatility spikes that quickly drove the VIX above 30, it has taken over a month for the VIX to fall below 20 and the VIX has not fallen much below 15 for the following several months”:

Don’t count the Seth Golden crowd out yet. I mean sure, they lost it all on Monday, but whoever was left to double down via SVXY is up 16% since Friday:

And by God, you people are still buyin’ it:

Short Vol Trade Lives! ETF at Heart of Turmoil Lures Record Cash https://t.co/WgwUeOpZMG via @markets pic.twitter.com/voIgB3ptx4

— Rachel Evans (@rachelevans_ny) February 12, 2018

Treasurys were mixed with a flattening bias – again, everyone is waiting on CPI.

Best day for HYG since November and not a moment too soon:

It was largely the same story in Europe where stocks were up across the board. But I mean all attempts to maintain a bearish bias aside (that is, looking at this completely objectively for once), it really doesn’t look great over there. I mean no one “needed” last week, but Europe has some hurdles to clear in terms of both the FX headwind and political issues so they really could have done without the drawdown, especially as the data continues to support the case for ECB normalization:

Chinese equities rose after a truly horrendous week, but I’m not entirely sure whether you can draw too many conclusions from that because… well… because read this from BBG:

Over the weekend, the China Securities Regulatory Commission and other regulators sent informal directives to some major stockholders encouraging them to purchase more shares in the mainland-listed firms they invest in, according to the people, who asked not to be identified because the instructions were not made public. They called on some mutual funds to avoid being net sellers of equities as well.

So that’s cheating, but it was good for a rebound in mainland shares with the ChiNext getting an especially hefty boost. Here’s the bigger picture for 2018:

Finally, after last week are you still so confident that markets can continue to rally once the blue line stops going up?…