Starting in early October with Chairman Powell's "far from neutral" speech, US and global equities corrected by -10%, then fluctuated sharply in a wide range; US 10y yields fell -35bps; and oil prices collapsed -35% while the dollar continued to rise and is now 8% above its February lows.

So where do positioning and flows stand after these big moves?

In the first notable observation, Deutsche Bank's Parag Thatte writes that US equity futures positioning has been cut sharply and is nearing the bottom of its range. Futures positioning fell to the bottom of the range it has been in since 2010 during past large growth slowdowns and shocks such as the US debt downgrade and European financial crisis in 2011, the China devaluation and global growth panics in 2015-16.

The most likely explanation for this pullback is that it is in response to the recent spike in volatility, or as Thatte calls it "vol shocks" which as he shows can last a while. As shown in the chart below, this is the 5th vol shock since 2010, with the prior 4 all coinciding with major events such as the first European/Greek sovereign debt crisis in 2010; the second European debt crisis and the US ratings downgrade in August 2011; the Chinese devaluation and ETFlash Crash from August 2015, and the gamma explosion/VIXtermination event of February 2018.

So how much longer will the current vol shock episode continue?

According to Thatte, past episodes when vol got elevated (>1.5 sigma jump) outside of recessions, the market took 7 weeks to bottom on average, but as long as 11 weeks in some episodes as trailing vol is typically an input into risk management models.

The current episode, which began in early October, is now in its 10th week, so still within the historical range on duration but approaching the upper end of it.

This may explain why many analysts are hopeful that with about one trading week left in 2018, the start of the new year will present stocks with a new opportunity to rally. Then again, there were at least 8 vol shock episodes (1962,1974,2001,1941,1948,1937,1966 and 2008), all of which took 140 days or about 20 weeks to resolve. In which case, the BTFDers may be waiting until the end of March before markets finally cooperate. Of course, if the US economy is currently sliding into a recession then all bets are off.