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JP Morgan's Head Of Quant/Derivatives Forecasts Revisit Of End-Of-Day Violent Selling, Sees More On The Way

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In a note that was issued mid-day Thursday JP Morgan's Marko Kolanovic lays out reasoning for expecting further violent selling periods.

Kolanovic  commended his team for predicting the violent sell-off on Monday after watching a build in selling pressure that started one week ago. 

Kolanovic's team noticed that 20 percent of the market volume was driven by hedges in multiple derivatives with exposure to options, levered ETFs and forms of dynamic delta hedging programs.

The fear here is that these programs are not human operated. Kolanovic said "there is a much larger pool of assets that is programmatically trading equities regardless of underlying fundamentals." This means high volatility will persist (specifically if S&P 500 stays between 1850 & 2000 according to Kolanovic) and that these types of participants are "selling equities and will negatively impact the market over the coming days and weeks."

The volatility is here to stay and the programmed trading, as far as JP Morgan appears to be concerned, is causing all of it.

Bonus Comment:

"The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Monday."

Posted-In: JP Morgan Marko KolanovicAnalyst Color Analyst Ratings


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