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“Well, That Escalated Quickly…”

Courtesy of ZeroHedge View original post here.

Well, that escalated quickly…

US equities suffered their worst day since October (but was saved by a decent late-day ramp off the S&P 100DMA and Dow support). S&P was the least bad on the day followed by the Dow and the Nasdaq, with Small Caps the biggest loser…

The Dow, S&P, and Small Caps were ramped back to practically unchanged from the US cash open…

After being down almost 1000 points, the Dow bounced hard off the July lows…

As Deutsche’s Jim Reid noted:

“To be fair I’ve been worried about the over leveraged Chinese property sector for years without anything much happening so it’s hard to know whether this is finally the big one or not.”

With the opening crash driving the second biggest selling wave in history

Source: Bloomberg

Who coulda seen that coming? Well plenty of things were flashing red

1) the post options expiration “gamma unclench” and “vol expansion window” allows for movement in US Equities (SPX and QQQ $Gamma were both +90%ile just two weeks back, now Dealer Gamma in negative territory vs spot for both)

Source: SpotGamma

2) a US Equities Vol market which has been pricing outright “crash” metrics for months (SPX Skew, Put Skew, iVol vs rVol, Term Structure all upper 95-99%iles),

Source: Bloomberg

3) significant de-risking flow potential from “negative convexity” vol-sensitives (what was +99%ile SPX- and QQQ- options $Delta just ~two weeks ago, 90%ile historical CTA Trend net exposure in DM Equities and 87%ile Vol Control fund US Equities exposure)

4) this week’s FOMC event-risk (higher Fed dot plot will signal faster tightening trajectory for ’23 & ‘24) and Debt Ceiling fears (the T-Bill curve’s kink is becoming increasingly extreme and USA sovereign risk is on the rise)…

Source: Bloomberg

5) a poor weekly seasonal slice for global Equities ahead (Sep17-Sep24 median chg ~-0.4% SPX, -0.9% HSCEI, DAX & Eurostoxx, -1.4% for Russell, with clear “Defensives / Duration over Cyclicals” historical sector performance tilts)…

6) a macro scare catalyst to-boot (China real estate “contagion” off Evergrande – mainland closed for holiday, but HSI Real Estate and Financials smashed overnight, while USDCNH moving towards 6.50 with client “Evergrande default” hedges in topside there)…

Source: Bloomberg

And the ultimate risk for Beijing is blowing out…

Source: Bloomberg

and 7) A drawdown is overdue (S&P was down 5% from the highs today, the first time since October)…

Source: Bloomberg

There were a few other divergences…

HY debt has also not been as exuberant in the last few months as The Fed unwound its corporate bond book…

Source: Bloomberg

Dow Transports divergence from Dow Industrials is triggering ‘Dow Theorist’ warnings signals…

Source: Bloomberg

And breadth has stunk…

Source: Bloomberg

99% of S&P members were lower today – the worst level since June 2020′s collapse…

Source: Bloomberg

The Nasdaq closed back below its 50DMA…

S&P broke below its 100DMA…

…and then late-day buying panic rescued it…

Small Caps crashed back below the 200DMA (and closed below it)…

All US equity sectors were in the red today with Energy the hardest hit along with financials. Utes were the least bad horse in the glue factory…

Source: Bloomberg

VIX spiked up near 28 intraday today…

Cryptos were clubbed like a baby seal…

Source: Bloomberg

Bitcoin puked down to the spike lows from Sept 7th and the El Salvador malarkey…

Source: Bloomberg

Still not everything was dumped today.

Bonds were bid across the curve (Asia was closed), with the long-end of yields down around 6bps…

Source: Bloomberg

On Friday, we pointed out that yields had hit a previous resistance…and sure enough, yields plunged…

Source: Bloomberg

The dollar was also bid, safe-haven/liquidity flows, and held at the pre-Jackson-Hole levels…

Source: Bloomberg

Commodities were mixed today with PMs bid and growth-related assets (copper and crude) dumped…

Source: Bloomberg

Finally, you have nothing to fear but fear itself…

Source: Bloomberg


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