All clear!

Or at least that appears to be the message from JPMorgan’s resident “Gandalf”, Marko Kolanovic.

You’ll recall that just days prior to the market meltdown that ended up catalyzing what BofAML guesstimated was some $200 billion in forced selling from CTAs and risk parity, Kolanovic suggested that things probably wouldn’t deteriorate enough to trigger broad deleveraging from the systematic crowd he’s made a name for himself warning about over the past several years. To wit:

Consistent with our previous research, we think that the move was not large enough to trigger broad deleveraging. Equity price momentum is positive and trend followers are not likely to reduce equity exposure.

Obviously, that wasn’t a great call. “Equity price momentum” accelerated dramatically to the downside the very next day when the AHE print from the January jobs report came in well ahead of consensus. Then last Monday, the bottom fell out completely. That ultimately “forced” him to say the following in an “update”:

In last week’s note, we noted that volatility, at the time, was not sufficient to trigger systematic strategy de-risking. On Friday, the market dropped ~2% on a day when bonds were down ~40bps. The move on Friday was helped by market makers’ hedging of option positions (as gamma positions turned from long to short midday). Friday’s move, on its own, was significant as it pushed realized volatility higher, which is a signal for many volatility targeting strategies to de-risk.

Further outflows resulted from index option gamma hedging, covering of short volatility trades, and volatility targeting strategies. These technical flows, in the absence of fundamental buyers, resulted in a flash crash at ~3:10 pm [Monday]. At one point, the Dow was down more than 6%, and later partially recovered. After-hours, the VIX reached 38 and futures more than doubled.