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Rebalancing Flow Call Plays Out As Stocks Stage Insane Reversal In Dramatic Comeback

Call it whatever you like, because at this point, folks will take it.

It’s the pension rebalance! It’s a short squeeze! It’s Kuroda moonlighting as an FX trader and pushing USDJPY higher into the close (“shhhh“)! It’s CTAs re-leveraging after going ‘max short’! It’s Yellen instructing an arm’s-length hedge fund to rescue stocks!

Not really. Or maybe. Except for Kuroda and Yellen. What it most assuredly “is” is what Nomura’s Charlie McElligott described on Thursday morning. To wit:

As previously stated, the lack of dealer balance-sheet and VaR- / calendar- constrained buy-side (enormously de-risked over the past 2 months) was likely to set the table for horrific market illiquidity and thus, absurdly gappy price-action into year-end—and et voila.

Yes, “et voila”, where that means the Dow rallying an absurd 850 points off the lows to close up by more than 250.



A quick check does look rebalance-ish (if you will). This is just a crude snapshot, because that’s really all I’m in the mood for, but it gets the point across:



This would appear to underscore the point:



Looks like I spoke too soon.

In any case, Thursday was obviously highly amusing. One notable is the NYSE Uptick Minus Downtick index, which hit 1,662 at one point, the fourth-highest of the bull market according to Bloomberg’s Andrew Cinko (that’s easily verifiable, but if you pan out on the chart below, it’s indecipherable, so I just zoomed in a bit).



Unsurprisingly, USDJPY turned up just as stocks started to push higher into what would morph into one of the more epic comebacks in recent memory.



Here’s crude and breakevens with the same inflection visible:



Thursday marked the biggest reversal for the S&P since 2010. Here’s the market map, for whatever it’s worth on a day like today:



The bottom line is that you can call this whatever you want to call it and nobody is going to mind, because considering the kind of quarter it’s been, folks will take whatever they can get.

One person who was certainly watching every tick was Donald Trump and we’d be willing to bet he was sweating bullets into the close.


3 comments on “Rebalancing Flow Call Plays Out As Stocks Stage Insane Reversal In Dramatic Comeback

  1. And now your screen is green. Or maybe you are testing your 4K.

    With VXN at 35 a 68% probability range was about 150 pts. Add one third these days with high volatility and you have 205. Ndx closed yesterday at 6260 and gapped down at open, so take the range from 6260. Now 6260-205 gives 6055.The buy programme came after a low at 6045. After the expected range was realized.
    Those algos are predictable.

    Thank God it’s Friday.

  2. Always easy to explain all this in hindsight or at least come up with a fact (or two) to explain our suspicions … Sometimes if one finds the interested party in advance it can be explained before it occurs. This is one of those times when an irrational market has a suspected culprit.
    A game of pin the tail on the Donkey perhaps…

  3. I can’t wait to be talking fundamentals again. This trading is insane. China hints at a better IP law and stocks go down. Trump stays crazy stocks go up. The reality is USDJPY really is irrelevant. Sure it is great to focus on and for some to try to manipulate but I have never understood the fascination with it. Yeah i get the arguments but real money guys don’t care. If we get a trade deal stocks will rip higher, if earnings and guidance come in ok we’ll rally. We might just rally in spite of it all because sentiment is so bad and people are underinvested. We are late cycle, stocks are pricing in a little recession, and we have to see when that thesis changes. The computers can knock it around but if it is brief it shouldn’t change GDP by more than a half a percent. We’ll see to quote the caller of the bottom.

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