Several of you have asked if I can give a quick interpretation & my personal take on posts of Nomura’s Charlie McElligott, so here goes ..

If you recently recall, I had mentioned how McElligott spoke about the ultimate pain trade being rotation into a “reflation” type theme .. In other words, any buying up to this point in the rally has been “defensive” in nature .. Low interest rate plays, anti-Covid stay at home names, gold stocks, high growth/momentum software stocks & mega cap tech/FAANG = deflation .. Investors have flocked into these type of plays based off the fear that the virus wasn’t going anywhere anytime soon .. They have been treated like Utilities have in past corrections, a flight to safety in a sense.. Recently McElligott has brought up how extreme this flight to safety has become & if there was any sort of trigger, such as positive vaccine news, it could set off a potent rotation & force a lot of buying in reflation & economically sensitive type names.. McElligott just the other day mentioned that the first sign of this rotation possibly taking place was in Monetary indicators like M2, where there were signs of less cash hoarding taking place.

McElligott also goes on in his recent note to talk about the magnitude of CTA buying that could come into equities if this major rotation takes off “if the S&P hypothetically were flat daily, we would expect $8.8B of buying over the next week & $12B+ over 2 weeks / $73B+ over 1 month” .. So obviously we need to keep a really close eye on both sweepers & price action to see if this rotation is for real or once again short lived .. Charlie seems to think, based of his indicators, there is a higher probability that this go around is the real deal ..

And lastly, Charlie also discusses how gamma is or has become a major part of things once again here .. With a whopping $4B+ sitting in the 3400 August strike, it can very easily act like a magnet into expiration, with his Qusnt model showing SPX 3463 as the number to be exact ..

We have discussed Gsmma a lot in recent weeks since this “melt up” officially got under way .. There are quite a few things we want to keep close tabs on over the next few days .. From rotation to gamma to sharpies & riff-raff, but don’t fret, we already have been doing so & I’m on top of the situation .. just pay attention to my post market “Flow notes” posts & Sunday member webinars to make sure you are filled in ..