SPX downside to 2000

Option Volume:

1. Total CBOE Equity option volume broke Brexit highs and 1YR +2StanDevs at 36 to trade at 38 indicating we are entering an aggressive sell-off period (holders of underlying have scrambled to hedge their exposure in a fashion more aggressive than brexit! - which is particularly saying something given that we saw SPX trade 10% lower on brexit vol).

- Thus this imo reinforces my opinion posted a few weeks ago (attached) which highlighted perfect downside technical/ price action that we will likely reach the 2000 level/ brexit lows given the amount of brexit like correlation we are seeing.

Implied Vols:

1. VIX traded aggressively on the bid as expected but the move lagged spot developments so wasnt much of a leading signal this time however, ex post there has been a number of bearish signals:

- Volatility of the VIX reached +2SD and climbed some 30% on the day, indicating the move higher in VIX was perhaps more than just noise that is likely to be faded as we often see with equity vols.

- SPX Bid and Ask volatility spiked 39/6% vs 40 .6%, with offer vol now outpacing bid by apprx 70bps indicating short funding is continually being squeezed a little more relatively (through higher demand) which is another sign there could be a rebalancing lower.

SPX Positioning:

1. I am short from 2182 avg and will hold until downside momentum looks to fade likely somewhere near 2000. Election, Fed, Bull exhaustion risks are all the function of this downside imo, and all pretty equally distributed at that e.g. fed accommodation has to fade sooner rather than later with most members doing their best to offer hawkish tones despite poor data (though nothing shocks me as to their ability to ease markets). More certainly though, bulls at new highs for 4wks being unable to push higher despite perfect conditions (very poor data) showed they were clearly exhausted and finally the election risks particularly given the two v poor candidates can only weigh on risk markets.

- Not to mention historically September is the worst month for SPX vs August being the historically best (poor liquidity transferring to lower vol likely the cause) so another quick stat reason to be short.

Risks to the short view:

1. Potential downside views to shorts (or topside risk) are that FOMC failing to hike causes more monpol induced euphoria but at these low implied probabilities any "fed no go" topside will likely be constrained to a 2% recovery rally at best and will be heavily faded at that. Bare in mind and as above fed speakers have done their best given conditions to remain hawkish so it will likely be a hawkish "No action" which once again limits topside imo.

Tactical notes:

From a micro perspective Real money clients are unlikely to be behind this move lower yet, today imo will just be the algo and HF community - further given LDN and Asia session was over for the main period of losses (and half of NY), i am expecting more profit taking/ selling next week once the slow money has had time to reposition and the rest of the world accounts react to the price action.

Questions, Comments and Likes appreciated!