Markets stocks VIX volatility

We’re All Momentum Traders Now

"We are all subject to the same risk management parameters."

I spent a good portion of Wednesday pounding the proverbial table on the necessity of viewing things through a VaR lens at a time when daily swings are being exaggerated materially by a volatility-flows-liquidity feedback loop which, if there were any justice in the world (and/or if everyday people were actually inquisitive), should be familiar to every market participant on the planet. The "problem" (if that's the right word) is that most fundamental/discretionary investors aren't willing to view the world through that lens, let alone admit to being caught up in (or at least subject to) the dynamic. A gym interlude There's a little community gym here in the neighborhood. I'm told it's funded by my board fees, but I have my suspicions given the equipment's persistent state of disrepair. Although it's rare that anyone else uses it (most residents on the island I call home are octogenarians+), on Wednesday, I had company. Unfortunately, the TV in the gym doesn't have Bloomberg Television, so for one, painful hour each day, I subject myself to CNBC. Yesterday, the network put up a graphic showing how large the swings were (in Dow points, of course) for Monday, Tuesday and Wednes
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7 comments on “We’re All Momentum Traders Now

  1. mfn says:

    So when does gamma get “repinned” and at what level?

    • Anonymous says:

      3225-3250 is the flip point. See the Nomura chart in the middle of this article.

      • mfn says:

        I know that’s not how things work, but seems way too high. Given the worsening coronavirus situation, there has — has — to be a re-rating of equities. Lot of technical talking heads on CNBC mention ~2,850. Lower? 2,352 (December ’18 lows)?

        • Anonymous says:

          Yes, the calm waters above 3,225+ seem unattainable now, given the new macro backdrop.

          From various sources, it seems like the “key levels” down are…

          2,950 ish
          2,850 ish
          2,650 ish
          2,350 ish
          1,800 ish (!!!)

          …dawned on me this morning that $150 earnings at 15x is 2,250 … and it wouldn’t take much more macro damage to wind up in both places (…both the E and the P/E) later this year.

  2. Bob says:

    “When you have a 4.5% up day in the market and a 2% down day — what does that mean?” says Kathryn Kaminski of AlphaSimplex Group. “It just means we don’t know what’s going on.”

    Obviously the folks over at Bloomberg apparently do not read this blog or subscribe to Nomura. This is why I don’t watch Bloomberg television anymore. Yes, it’s a step above CNBC, but ultimately it thinks its clients are rubes.

  3. Sorry to play the “how low can you go” game, but I do think it’s important to put it into context given what H has outlined above.

    Imagine if consensus, even briefly, became that EPS could fall to -10%. Using multiples, 14x -10% EPS gives you 2,000 on the S&P.

    I’m not saying either that price or that earnings number are anywhere near what will happen. But if that becomes the thought process even for a day, in this environment we can trade toward that level VERY quickly.

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