Why Apple (and the rest) collapsed Tuesday

Think you understand what’s going on? You haven’t got a clue, according to ZeroHedge.

From Here Is What Triggered Today’s Sudden Stock Liquidation, (forwarded by a friend-of-the-blog who objected to me quoting Vanity Fair as a source of anything knowledgable about the market): 

Earlier this morning, Nomura’s Charlie McElligott noted something which in retrospect was quite prophetic: the cross-asset strategist highlighted that his Risk Parity model showed that the market’s most important strategy is in “de-risking” mode as the economic cycle turns sharply:

In a positioning confirmation / “nod” then to this growth- and inflation- slowdown scenario, it is finally worth noting that we see our Risk Parity model having added enormous notional size in global Government Bonds (USTs and JGBs) over the past month, against very large selling of global Equities and Credit.

The implication – and confirmation – judging by today’s market, is that the trade was a long way from finished…

But while ongoing (relatively slow) risk parity deleveraging may explain the pressure on the market over the past month, the reason for the sharp waterfall in US stocks just after 12pm ET has to do with another systematic “trader” type in the market: namely the much faster CTAs, or managed futures funds, which do nothing but chase market momentum once it has been established.

As McElligott writes in a follow-up note the Nomura CTA Trend model “is again deleveraging massive notional in long US Equities expressions across SPX, RTY and NDX live.”

My take: I usually avoid ZeroHedge, but out of respect for my friend I worked hard to make sense of this piece and today’s follow-up (Trader: The Reason The Market Sold-Off Is Worse Than You Think). I had to look up “notional” and I am left with only a dim understanding of what CTAs do and how they do it. I guess I didn’t retain much, except for this lingering sense of existential dread. Your mileage may vary.

Apple and the S&P 500: Percentage change over the last five trading days.



  1. Jonathan Mackenzie said:

    I’ve been reading Zero Hedge for years. They provide Tom Clancy level suspense and conspiracy. They are for entertainment value only, as they have routinely cited impending global collapse throughout the longest bull market in history. They always sound convincing except when compared to the actual facts of the market.

    I’m mostly just amazed that the bunker they publish from has such reliable internet.

    December 5, 2018
  2. Gregg Thurman said:

    I think a major contributor to AAPL’s weakness now, and through DEC expiry, is tax loss selling.

    The trading volume on AAPL while it was above $195 had been huge. Tax loss sellers can take the loss on AAPL to offset gains made elsewhere. They can’t buy AAPL back for 30 days after the sale, which would put their re-entry into AAPL around JAN expiry, well before earnings and probably below their original cost basis of $195.

    For tax loss sellers this is a beautiful opportunity to reduce cap gains taxes AND to lower their basis in AAPL before JAB earnings report. If I had shares purchased above $190 – $195 I’d do it.

    December 6, 2018

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