The Market: There's an IG CDX Gap at SPX 4046
Bullish bag-holders will continue to feel pain until they accept that the Fed is actively trying to break financial markets right here and now.
As discussed early this morning on the private Xwitter feed, BOJ President Ueda killed the bounce in equities anticipated by the VOL complex on Friday.
The long end of the UST and TIPS curves is now ripping to fresh cycle highs. Yet, in pre-market trading equities have barely budged, down just -30 bps. This continued disconnect between rates and equities has underpinned continued widespread mocking of the 1987 possibility. But those mocking the 1987 possibility mock at their own risk - the CDX market continues to point to a decisive risk-off environment unfolding beneath the surface of a heretofore tame SPX correction of less than -6%. (And as discussed in the Volmageddon post yesterday, a 1987 redux is a very low probability - what matters is market pricing. If the probability moves from 1% to 10% over the course of this week, that is a tremendous amount of alpha to exploit.)