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Stocks Are Suddenly Plunging As Momentum Crashes

Courtesy of ZeroHedge View original post here.

Stocks Are Suddenly Plunging As Momentum Crashes

Having squeezed higher overnight and accelerated after the US open, it appears the catalyst for the sudden dump in US equity markets is the European market close

Nasdaq futures illustrate the technical nature of the move best as the drop erases the sudden spike at the US open on Friday (after payrolls missed)…

As it appears momentum-tilted quants and CTAs are suddenly collapsing after a stellar start to the year as we discussed last week in "The Best And Worst Hedge Funds Of 2019: Momos On Rampage"

Source: Bloomberg

This is the biggest collapse in momo since the extremes in 2009…

Source: Bloomberg

… as Michael Krause noted:

Chatter is that this is forced derisking from momo-tilted funds that have suffered the equity equivalent of a "VaR shock" as momentum has outperformed so dramatically that they need to be rescaled to risk exposure limits.

Indeed, none other than Charlie McElligott commented on this possibility earlier today when he noted that a potential selloff in duration/rates would also be felt in the US Equities complex, "because as we’ve outlined here for months, the current consensus / “Momentum” positioning construct is a pure reflection of the “Duration Trade”: “long” Secular Growth and Min-Vol Defensives against “short” / underweight Cyclicals"

Thus, the late last week Rates / UST selloff drove such an outside performance bleed for many in the US Equities space—because their portfolios are built for lower UST yields (“long” Duration-sensitives like Defensives and Secular Growth, vs underweight / “short” High Beta, Cyclicals / Value, Commodities-sensitives)

Putting the violent momentum reversal in a chart, this represents the largest 6-Day cumulative move higher in McElligott's equity "pain indicator" since December 2017, as funds were "wrong-footed" by being heavy "momentum" and short "value"…

… with the market action today showing what happens when countless momentum chasers suddenly hit reverse.

 


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