The Everything Rally Is Here

The reversal of the reversal has begun.

We continue to be bullish heading into the new year, but are not chasing this rally (cash is still a position). Here is the quickest rundown you can get (feel free to email us with any further questions gmgmacroresearch@gmail.com):

• QQQ needs to break above 400 & 4725 for the S&P 500 to continue the rally (figure 1 & 1.1)

• The market went from extremely oversold to extremely overbought in ONE WEEK. The reversal of the reversal. Bullish (figure 2)

• Tuesday’s 5% surge in semiconductors to recent highs offers a bullish backdrop for both the S&P and QQQ. China A-shares are also strong (3)

• When volatility risk premium spikes, a $200B+ group of funds (managed volatility funds) crush the bid like no other.Bullish (figure 4)

• A rotation is happening out of defensives (Utilities and REITs) and into the broader market (cyclicals/materials/industrials).

• “Smart” money is adding exposure according to Charles Schwab (figure 5)

• Some technical reasons:

  • Commodity Trading Advisors (CTAs) have officially flipped to re-levering

  • Gamma is long

  • Liquidity is better

  • Corporate cash levels are too high

Take a step back, the long-term S&P 500 trend is intact.

Figure 1

Now zoom in and see blast breakout we are about to have tomorrow.

Figure 1.1

Figure 2

Chinese A shares aka Emerging Markets in general are acting a lot better

Figure 3

Vol funds selling those expensive PUTS to those noob retail traders.

Figure 4

According to Goldman Sach’s systematic strats division: CTAs, risk-parity funds, vol control) have $25b of demand over the next 1-month assuming a flat tape and $60 billion worth of demand in an up tape. Bullish

Figure 5

Return always wants its risk payment.