Anatomy of a market collapse…

10-4

  • a mere 0.2% move in the 10-year yield unnerves financial markets
  • computer-powered algos that trade scale exposure on volatility accelerate selloff
  • huge squeeze on leveraged short volatility positions (e.g. long ZIV, Oct 2 CFTC data shows 2.6x more short leveraged VIX positions, Barrons forewarned clients to avoid short volatility positions in “calm market”
  • fears and declines in emerging markets, coupled with rising uncertainty associated with trade protectionism (e.g. tariffs) permeate
  • stretched valuations in tech and concomitant early selloff in small caps

Bullish Case:

  • Equity fundamentals remain strong
  • Oversold market full of bargins
  • Upcoming earnings season could fuel recovery