Trader Who Correctly Called Tuesday's Crash Lays Out What Happens Next
Having correctly predicted the "breaking point" trigger for the S&P's Tuesday plunge - which incidentally coincided with the 200DMA - at which CTAs would collectively puke, Nomura's head cross-asset quant Charlie McEllgiott, is back with a note slamming his critics (apparently those who failed to be right decided to deflect their lack of added value by criticizing the Nomura strategist), while also mapping out what's next for the market should the current risk waterfall continue.
First, we go right to McElligott's well-deserved victory lap, in which he steamrolls his "quant" critics, and writes that he received a number of pass-along notes yesterday from around the Street "which questioned the validity accuracy of our CTA model âdeleveragingâ call from Tuesday, which again ânailedâ the S&P futures level where the market would come under significant notional selling pressure (as well as Russell and Nasdaq âtriggerâ levels as well)."
What he is saying is simple: Wall Street is perplexed by how he could get it so right, and all the other "experts" did not, and is accusing the Nomura quant of a lucky one-time fluke. Needess to say, McElligott will have none of it, and highlights that as part of the sellside criticism of his take, there were "mis-categorizations/inaccuracies" on a number of fronts which need to be highlighted:
Misinformation as to the notional size of the selling which we estimated vs what was reported
Inaccuracies of the AUM scale of the CTA universe and position sizing / leverage allocation therein
Whether this âtriggerâ was a âdeleveragingâ of a long (size reduction of the long which it was) vs outright âshortingâ(which was misreported / misinterpreted by some)
Omissions / lack-of-context surrounding macro- and positioning- / performance- catalysts which Iâve been documenting in recent notes that actually âkicked offâ the move to said trigger levels
A general lack-of-awareness as to the make-up of the modelâi.e. that we incorporate 2w, 1m, 3m, 6m and 12m windows to capture the broad-spectrum of CTA lookback periods across the trend universe
No context as to the incredible accuracy of the modelânot just via the success that the tool has had in identifying âmarket inflections,â but with regards to our CTA replication modelâs incredible track-record vs benchmark
Not satisfied with the evisceration of his most vocal critics, the man who is rapidly emerging as the true quant "Gandalf" writes that in light of "the incredible task of prognosticating 58 unique cross-asset futures contracts as our QIS teamâs model doesâand inherent requirements of trade direction / sizing / leverage of courseâthe index replication model is brilliantly accurate on performance-matching vs the index", to wit:
Since 2016, the model has exhibited an average deviation from benchmark of just 54bps, with a median deviation from benchmark of 48bps
Over the incredibly volatile last 6m both from a cross-asset realized volatility- and CTA performance- perspective, the average deviation of the replication model from benchmark is just 56bps, with the median deviation from benchmark being 58bps
And his crushing parting words at his desperate-for-publicity-and-page-views critics:
In the absence of viable alternative theories being presented from elsewhere with regards to the extreme and âprice-insensitiveâ -action and explosive futures volume on the sell-downâas well as an awareness that many competing CTA models on the Street grossly oversimplify to just a few of the larger asset futures and apparently do nothing more than incorporate a âVWAP breakevenâ and / or simple âmoving-averageâ logicâI feel more confident than ever in our TRANSPARENT modelâespecially as we alone have our performance historically tracked versus benchmark.
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makes it much more believable if/when you can do this
WHILE IT HAPPENS. LIKE IT"S DONE HERE BY A NON-PAID AND UN-BIASED ANON
Fucking hate these after the fact quarterbacks.
https://www.zerohedge.com/news/2018-12-06/trader-who-correctly-called-tuesdays-crash-lays-out-what-happens-next