from Zero Hedge
Speak of the quant devil: only earlier today we were referencing the most recent warning by JPM’s quant guru, Marko Kolanovic, and lo and behold, just minutes later the man with the impeccable record of picking market inflection point released a new report which contains his most dire market forecast yet for 2016.
Here are his latest comments with the key sections bolded by us:
Over the past month, the market rose despite mixed fundamental data, weak seasonal patterns, and nearing risk from catalysts such as Brexit. In our view, recent gains did not have much justification in fundamentals or investors’ psychology (‘climbing a wall of worry’) but were significantly driven by inflows from systematic strategies. Our analysis suggests that most of the technical buying is now exhausted and leverage in the system is high. Convexity of option market makers have also turned negative, supporting higher realized volatility in the near future. As we analyze below, other important market participants – pension funds, hedge funds, corporates (buybacks), retail investors and foreign investors – are less likely to provide significant support for the market near term. The weak technical, seasonal, and flow trends pose elevated downside risk for equities, in our view.