Everyone Is Long Momentum Now
Between the Lines - Vol. 8
I’ve been doing this long enough to know exactly when my own calls start making me nervous, and it’s actually not when they’re wrong. It’s when they’re right, and the people who told me I was an idiot for making them six weeks ago are now repeating the thesis back to me with slightly different wording, like it was the original thought. I guess that’s where we are right now.
This rally has been so clean that the same machinery now makes the reverse direction equally efficient, and almost nobody is paying for the right to be on the other side of it. Long gamma in the dealer book has been the most recent structural bid. Index vol has been pushed to levels that, in any other context, you'd be calling a gift if you expect a puke. Overwriters keep selling calls into a tape that's grinding higher, getting forced to cover and roll. Levered ETF AUM is enormous and rebalances daily in the direction of the move. And the underweight discretionary cohort has spent six weeks losing the argument with price and is now buying, late and undoubtedly a bit bitter about it. Every one of these flows is reflexive. The problem with reflexive bids is they're also reflexive offers… same door, just the opposite direction.
My Phase 3 basket is very much alive and will become even more so if semis come off. Phase 3 is effectively a short momentum trade right now, so when momentum comes off, the names rally. I don’t monitor 13Fs all that much, but there are some noticeable buys in the software space, specifically in a lot of Phase 3 names - so you could argue the names are in an accumulation phase. In case you missed the Phase 3 post, I have linked it below.
What’s changed in the past week is that something about the feel of last week has made me sit down and write a different kind of post this week. Just thoughts on my mind, a quieter post that if you only read the title, you’d assume I’ve lost my nerve (which I haven’t).
