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If there is anything today's violent reversal in the market demonstrated, where this morning's inexplicable levitation (well, maybe explicable now that "terrible news is great news" again) was smashed with stocks plummeting once Trump tweeted that the China trade war ceasefire is dead, and the US would impose "a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country", it is that algos, quants, and systematic funds remain the marginal price setters of the US stock market.
Indeed, as Bloomberg's Andrew Cinko said when commenting on today's early morning levitation, it "looks more like it's being driven by ETF flows or perhaps quant- or multi-strategy firms. That's money that tends to go out as quickly as it came in, leaving the S&P vulnerable to a reversal as the bid dissipates." Ironically, just minutes later we got definitive proof of just how fast the passive, or algo money, flees in the milliseconds following Trump's tweet.
Question - Buying - Selling - Today - Sense
So with the question of who did all the buying and subsequent selling today laid to rest, it makes further sense to ask what happens next, now that the ETFs, quants and generally math PhDs are in charge.
Well, according to Nomura's quant insight team led by Masanari Takada, the answer is nothing good.
Takada - FOMC - Post-mortem - Analysis - Baseline
As Takada writes in his FOMC post-mortem analysis, he notes that in his baseline scenario, he expects selling of equities by CTAs and other such market participants "to not go beyond the clearing out of long positions; we would not expect these investors to start staking out new short positions unless the US economy were to suffer an obvious loss of momentum." Which is precisely what Trump's restart of the US-China trade war virtually assures.
Looking over the positioning of various speculative traders, Nomura says that...
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