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Stock Buybacks Hit All-Time High In November, But Enter "Blackout Period" This Friday

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One month ago, when stocks were still just shy of the 5 month low hit in late October and when sentiment was borderline apocalyptic (just days after Morgan Stanley's Mike Wilson said you can forget a year-end rally... oops), we took the other side of the trade and siding with BofA's Michael Hartnett, laid out the reasons for a tactical face-ripper of a rally among which we said that "Here Comes The Surge In Stock Buybacks " citing data from Goldman according to which there was roughly $5B worth of daily VWAP demand during this open window and with November and December the best two month period for executions of the year.

We also cited a report from the UBS trading desk which showed that the 5-day rolling buyback average is expected to soar from virtually nothing on Monday to nearly $40 billion by next week.

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3 gold charts we are watching: Looking topish

The golden shooting star

Absolutely crazy action in gold, currently putting in a huge shooting star candle. This is not what you see at lows...

Source: Refinitiv

What is gold?

Just another assets where CTAs and fast money play around? Gold and SPX have moved in almost perfect tandem since 2022. The overnight spike has little to do with Fed, but more about the psychology of masses trying to chase the same stuff at the same time.

Source: Refinitiv

Too much gold euphoria?

The crowd has been busy chasing gold calls, pushing skew to extreme levels. The 1 month GLD put/call skew is indicating a possible contrarian signal. Last time skew traded here marked the violent top back in March 2022.

Source: GS

a day ago at 19:25

3 charts we are watching: Extremely cheap hedges

Repeat after me

Downside protection is cheap. The crash in skew has been epic.

Source: Refinitiv

We have come a long way

Another possible contrarian signal for the SPX. Skew suggest equity positioning is at 7.5/10 according to Goldman's derivatives guru Marshall. In late October we were at 3.5....

Source: GS derivs

Insurance

You buy house insurance before it starts burning, and you should be happy to pay a relatively small premium for that "privilege". Cost of SPX 3m at the money is at the lowest in "modern times".

Source: GS

a day ago at 19:29

Big short gone big long

The big short is now a big long

From minus 200bn to plus 200bn...

Source: GS

Crap is king

In mid November (here), we asked ourselves rhetorically when the chase for laggards and low quality would begin. Fast forward to today and things have really picked up. The chase for crap is on, and usually tends to last for longer than most think possible...

Source: Refinitiv

King equal weight

The latest squeeze in the equal weight NDX vs the NDX has been huge.

Source: Refinitiv

Fading "sentimentor"

As NVDA goes, goes the market, or can the low quality stuff keep up the market?

Source: Refinitiv

Can't hear the canary

Notable risk off moves in currencies sensitive to global "fast money". SPX vs MXN inv gap becoming very short term wide.

Source: Refinitiv

VVIX - new recent highs

The VVIX vs VIX gap is growing by the day...

Source: Refinitiv

but no panic

Goldman combines four vol components in creating their proprietary "US panic index". Panic is basically zero...

Source: GS

CTA superlatives

The unemotional crowd has been busy lately. Quick stats via Goldman's king of flow, Scott Rubner:

1. bought +$225bn in the last 1-month and are long $92bn of global equities

2. $58bn to buy in big up tape, $210 bn to sell in big down tape

3. biggest increase in exposure ever

Source: GS

130bps of cuts priced in

Mike Wilson stresses that with 130bps of cuts now priced into the Fed Funds futures market through year end 2024, investors have set a high bar for cuts to be delivered. The cycle peak in front-end rates is typically a bullish signpost for equities assuming that inflation is contained. On the other hand, if inflation proves to be sticky despite slowing growth, the Fed typically maintains restrictive policy later into the cycle, only cutting rates when the growth backdrop deteriorates significantly. (Morgan Stanley)

Bring out the hawkish rhetoric

Financial conditions have gone ahead of the "narrative". Fed meeting coming up. Recall what boss Powell said on Friday: "...It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so."

Source: Bloomberg/Authers

20 hours ago at 21:46

The perfect flow Tsunami is over and it is time to put on tactical shorts

The perfect flow Tsunami

We have had a perfect flow Tsunami over the past few weeks where "everyone" needed to buy equities. This has played out now and, more than on the margin, things will get incrementally less supportive from here. Our experience is that inflection points like these are normally a good time to put on short term tactical shorts. And guess what, doing it via options is record cheap & attractive.

Holding out for the last $20bn...?

Do you fade the CTAs here after close to $100bn of fast buying in US equities or do you wait for them to go back to historic max longs that would imply a $20bn or so of more buying?

Source: GS

The "systematic sister" also pretty long

Volatility control strategies have increased exposure to the ~95% percentile on a 5-year look back given the reset lower in realized volatility.

Source: GS

Peak buybacks

The blackout window begins on Monday. Buyback volumes then gradually drop by 35%. The blackout window will last until 1/19/24.

Source: UBS

Past peak inflow push

Passive Global Equities have seen >$48B worth of inflows over the past 4 weeks. Regionally, US equity funds recorded $13Bn in inflows over the last week (1.0z), accounting for the bulk of equity ETF inflows. Hard to see this continue in the same extent.

Source: EPFR

Gross at 99th percentile

Hedge funds have for sure chased the rally and are absolutely no longer "clean" in terms of positioning.

"GS PB Gross exposure 3y and 5y percentile ranks in the 99th percentile. And Net exposure in the past year has increased to 59%percentile, from near zero. US EQ saw the largest net buying in 3 weeks Fri (1-Yr Z score +2.7), driven by short covers and to a lesser extent long buys (2.7 to 1) in Macro Products" (GS)

Source: GS Prime

Missing M&A

The wild card in terms of equity demand is always M&A. Many believe that 2024 will be a better year where we see an uptick in mergers. But let's not forget the short term picture: 2023 is an awful M&A year and it is hard to see that board will push through big deals now in the days leading up to Christmas.

Not insignificant

NVDA insiders sold or filed to sell about 370,000 of shares last month worth ~$180mln. Zuck unloaded $185mln of stock in November. Not huge, but we will probably see more insider selling announcements.

Are you waiting for them to halt the whole market?

Shall we wait until realized goes to zero before we put on those volatility hedges?

Source: Refinitiv

SPX - massive resistance

It always feels "different", but we basically saw an identical squeeze play out in June/July. The shooting star candles, the negative RSI divergences etc. To us, this is how it looks when a huge buying tsunami is running out of steam.

Source: Refinitiv

Buying puts

Current levels of volatility are attractive for putting on downside trades. Volatility is low and skew is depressed. Chart shows the payoff profile for the SPX January 4400 put (closed at 24).

Source: Refinitiv

7 hours ago at 10:58

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3 gold charts we are watching: Looking topish

The golden shooting star

Source: Refinitiv

What is gold?

Source: Refinitiv

Too much gold euphoria?

Source: GS

3 charts we are watching: Extremely cheap hedges

Repeat after me

Source: Refinitiv

We have come a long way

Source: GS derivs

Insurance

Source: GS

Big short gone big long

The big short is now a big long

Source: GS

Crap is king

Source: Refinitiv

King equal weight

Source: Refinitiv

Fading "sentimentor"

Source: Refinitiv

Can't hear the canary

Source: Refinitiv

VVIX - new recent highs

Source: Refinitiv

but no panic

Source: GS

CTA superlatives

Source: GS

130bps of cuts priced in

Bring out the hawkish rhetoric

Source: Bloomberg/Authers

The perfect flow Tsunami is over and it is time to put on tactical shorts

The perfect flow Tsunami

Holding out for the last $20bn...?

Source: GS

The "systematic sister" also pretty long

Source: GS

Peak buybacks

Source: UBS

Past peak inflow push

Source: EPFR

Gross at 99th percentile

Source: GS Prime

Missing M&A

Not insignificant

Are you waiting for them to halt the whole market?

Source: Refinitiv

SPX - massive resistance

Source: Refinitiv

Buying puts

Source: Refinitiv

Today's Top Stories

All Four "Pillars Of Civilization" Are Under Attack By An "Anti-Human Death-Cult"; Shellenberger, Carlson Unload On Global Elites

This article is so good,
it's for premium members only.