Another Bad Day... More of the same volatility shakeout extended the S&P 500 drop from the last record to 10%, as it shed -3.5%. During yesterday’s session, all sectorial 50dma were shaken out, including some previously far distanced 200d ma. The dollar gyrated, making further headway in particular against EM currencies which were dragged down by CNY, which itself was affected by a sharp 60% fall in China’s trade surplus and an equally sharp decline in local stocks which unerved investors in Asia early on Thursay. The notable FX moves were the gap lower in EURCHF (-1%) and EURJPY as CHF and JPY served as safe havens, not anywhere near as much as bitcoins, it seems, for those who think xcoins qualify as investments with any chance to go through 2018 without a further convergence towards their intrinsic value. Perhaps this resilience to global adversity will revive animal spirits into bitcoins, supported at the margin by a major central bank adding its voice yesterday to say that regulating bitcoins is “not anywhere near a top priority”. Hopefully, this is true for all central banks but it remains an unfortunate choice of words reflecting a misunderstanding of the dynamics at play as cryptocurrencies are for the most part, a scam, a bubble and a fraud, dragging gullible and inexperienced investors for a ride to perdition. 

GBP strengthened a little further as the BoE said it was optimistic about the economy due to  “robust global demand” and the past depreciation of the pound and wants to tighten. Let’s see if they have the right vision (of Brexit) and can deliver.... Gold closed literaly unchanged and bonds which started weaker as the initial culprit for more equity markets losses staged a recovery closing mostly unchanged after the Tsunami that struck equity markets yesterday. Summing up... As opposed to what the rally on Tuesday may have led some to believe, the volatility spike (trebbling) from last Monday was not a technical adjustment but a fundamental one. It will not only last (sub 10% implied vol’s are gone for good) and therefore most likely spread across the volatility curve (vix only measures 1 and 2 months vols), but it will affect valuation (forcing prices lower) restoring stock markets as risky investments, a status that stocks had lost following years of a relentless staircase rally. People will learn their lesson that volatility selling can cut both ways. People will also learn that following peak hubris (link)!influencers can be costly in particular the USD70bn flows that went into equity ETF’s in January alone, part of which might head towards the exit door after suffering a 10% correction. How long can this correction last? The jury is still out as to wether this correction will morph into a bear market but we cannot emphasize enough the fundamental nature of what has occured. Higher vols might equal lower prices for longer, give or take a few bounces, in our view.

Risk reversal (difference between vol of call and vol of puts) is back at -9 , nearly double the 5y average. The s&p500

50d ma (short term trend) is gone and the 200d ma is just 1.5% lower. All 50d ma of all sectors of the s&p are gone with 9 out of 18’of the 200d ma gone as well. As regards the major indices, the small capnindex is right on its 200dma. Next days will be crucial for robots.

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