Look Beyond the (fearful) Crowd
Equity markets are catching an early bid today. Our theme of slightly contrarian trades and being able to see beyond what everyone is fearing right now continues.
Since markets are moving quickly we will post just a few bullets instead of longer posts as we would like to point out a few inputs for people to digest.
We mentioned the buyback blackout fading last week. As earnings are progressing, more and more companies will once again be able to buy back shares. This has been one of the biggest drivers of the equity rally. Given the fact most share prices have fallen, buybacks will surely be an active buyer sooner than later.
The CBOE put call ratio spiked higher again. This is often referred to a “panic” signal in media, but the truth is this indicator is mostly a contrarian signal. People tend to buy protection too late.
Below charts show the CBOE put call ratio (white) versus the SPX (orange).
Given the (still) elevated levels of volatility, things could get rather tight if the crowd decides the protection they had to buy is too expensive. Watch possible inverted panic moves as investors could start deciding dumping expensive volatility.
Source: charts by Bloomberg