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In 2020 and 2021, I got inflation badly wrong.
I bought the line that it would be transitory because, well, “don’t fight the Fed.”
Everyone knew that one.
Inflation kept rising. So did yields. But the contrarians who had looked past the slogan saw it coming.
Thank you.
That experience stuck with me. Being contrarian for the sake of it is idiotic. Being contrarian when the consensus has become expensive is a different exercise entirely.
Which brings us to today.
The CBOE SKEW Index is sitting at 147.
That matters because SKEW measures how much investors are paying for tail protection. A reading around 100 suggests a fairly normal options market. At 147, far-out downside insurance is materially more expensive than usual.
Meanwhile, the VIX is around 18.77.
So day-to-day volatility is not screaming panic, yet investors are paying up for a nasty downside event.
That is an obvious dislocation.
And the momentum data is even more interesting.
The current MSSZTMTM selloff has seen the long leg fall 29%, the short leg rise 18%, and the net factor return drop 41% in 17 business days.
Morgan Stanley’s history covers 45 comparable momentum selloffs since 1999.
The median event produced a 16% net factor decline and lasted 46 days. The current drawdown sits in the fifth percentile on severity and duration.
In plain English: this has been an unusually violent unwind, unusually quickly.
Of course, that does not guarantee an immediate bounce.
But...
The surprise is no longer obviously on the downside.
Investors have paid handsomely to insure against it. Momentum names have already been put through the woodchipper.
We now have mega-cap earnings ahead, and the reaction matters more than the headline.
To know which specific companies I am looking at to play this momentum reversion higher, book a call with me THIS WEEK.
If earnings are solid and the market sees even a modest slowing in capex growth across the big spenders, the Qualimentum factor could catch a bid. And when the factor turns, it tends to drag everything with it... including the names everyone had already written off.
The real question is simple:
Would you want to be short here?
That does not mean blindly buying a falling chart. It means understanding when price, positioning and narrative have become disconnected from the actual data.
Reply SKEW and I’ll send you the historical selloff table plus the five questions I would use to assess whether this sort of drawdown is turning into opportunity.
Because selling into the worst pain of a move feels safe in the moment. Then the recovery starts without you, and you are back to chasing a stock you already owned at a better price.
Remember, BOOK THAT CALL WITH ME.
Perhaps the washout of the past few weeks has been super painful.
Let’s chat about how we can stop that happening again (click to view my calendar).