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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Equity futures point to a lower market open Friday in what I strongly suspect is an indirect consequence of the Gamestop-related madness. The jump in options trading caused by widespread short covering (no hedge fund manager will be forgiven for being caught up in a short squeeze after this week) has pushed the CBOE Volatility Index (VIX) higher. The higher VIX causes hedge funds to de-risk portfolios, reducing all major bets, not just shorts.

Citi analyst Kim Jensen is not yet concerned that portfolio de-rising will cause a major market sell-off, at least yet,

“Net long positioning in S&P 500 futures is extended. Only around a quarter of long positions are in loss, even at 3,720 and remain on average in profit above 3,700 [current level is about 3750]. The downside risk of large scale long unwinds pushing the market lower are more likely below 3,600 where all long positions are in loss by up to 6%. NDX [Nasdaq] longs are still in profit above 12,690 Long positions are mainly recent entries, but still only ~10% (the most recent long entries) are in loss at 13,050. Pressure on longs grow below 12,500 where more than 75% are in loss. Meanwhile, existing short positions will remain fully offside while market is above 12,880″

Mr. Jensen’s view implies that retail trader speculation could kick off a broader sell-off if the fund manager de-risking pushes the S&P 500 below 3600.

“@SBarlow_ROB Citi: Losing 3600 on the SPX would kick off broader selling” – (research excerpt) Twitter


BMO economist Sal Guatieri warned clients about building inflation pressure,

“So far, the flood of new money seems to be gushing through asset markets (like equities and housing) rather than product markets, as consumer inflation remains calm. But that could change if the economy comes storming back and policy makers keep a heavy foot on the gas pedal for too long.”

“@SBarlow_ROB BMO: U.S. inflation risk building” – (research excerpt, chart) Twitter


BMO analyst Sam Crittenden sees value in metallurgical coal producers after the commodity price jumped,

“After trading in a tight range near $100/t from November to mid-January following China’s import ban on Australian coal, the met coal price (FOB Australia) is now up 57% since January 12 to $161/t currently. This has been driven by recovering demand in India and Europe … Underlying demand in China is strong and the CFR China price remains elevated at $220/t while the ban has resulted in more imports from other regions such as the US and Canada. Meanwhile, India, Europe, and other Asian countries are starting to procure more Australian coal, which has driven this recent spike in prices. Upside from here could be limited, absent any significant supply disruption from weather or otherwise; however, we expect prices to remain supported in the $140–150/t range, which we see as the marginal cost of production. We see further potential upside in both Teck Resources (TSX: TECK.B; Outperform) and Warrior Met Coal (NYSE: HCC; Sector Perform), as in our view they do not reflect current met coal prices.”

“@SBarlow_ROB RBC likes met coal providers” – (research excerpt) Twitter


Diversion: “I Threw $1,000 Into That Stonks Game Because Why Not” – (language) Kotaku

Tweet of the Day: " @zGuz NEW: The CEO of Webull tell us the decision to join Robinhood in restricting AMC and GameStop trades came from soaring costs to settle its users trades: “It wasn’t our choice ... this has to do with settlement mechanics in the market.” – (short video) Twitter

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