Today was a classical day we have been waiting to happen. Markets opened lower in Europe and one of the first charts we saw while flicking through all our systems was the below comparison chart of the crash of 1929, 1987 and today.
Most charts can be tweaked to look very interesting, but these types of crash charts always start circulating close to local lows. Sure, we will have another crash sometimes, but timing it will be very hard. The below chart looks interesting, and we will not dismiss it, but from a timing point of view, we remain sceptical such a crash will occur now.
Last week we outlined our logic about the bounce from recent lows had reached the upper Bollinger band, that all corrections looked similar since 2009, and the fact we were setting up for another move lower. This has so far played out well.
Source: chart by Jessiescafe
The CTA Index measures the top 20 CTA (model, often trend driven) funds. These guys made money many years ago, but have strangely enough managed to keep sticky investors who have kept money invested with the CTA managers. Since 2016 the CTA index is down 16%, and seen over the longer term this space has been pretty much flat since 2010.
As markets collapsed in October the CTA index followed, but note that the CTA index as of late October has been moving inversely to the SPX.
This market has frustrated most “smart” guys. Hedge funds have lost massively during this last market rout. What if the “smart” CTA guys have turned their models into being net short after the October sell off?
It could all result in an interesting set up should this market decide to frustrate the crowd again by squeezing higher.