Goldman Quants Talk About Today's Market Action

From ZeroHedge: 

Why Did The Market Crash? Goldman's Quants Explain

Remember when last week JPM's head quant Marko Kolanovic said there is little risk of the quants puking?
Well, he was wrong.
Here are some thoughts from Goldman's strat team on levels and size of flow from the Passive community which gives an idea as to what drove the accelerating market crash into today's close.
* * *
SYSTEMATIC FLOW UPDATE…
*our (GS systematic strategist) work suggest that the 2,735 level in the S&P is where trends could start to change, driving more aggressive selling from the CTA community. We estimate this community to be long approximately $70bn of US equities and $190bn globally coming into today. If negative price action continued or worsened, we think getting flat (i.e. $190bn of global sales) in a month is reasonable

The difference between Risk Parity and CTAs:

1. Risk parity and CTAs (managed futures funds) are not synonymous: Risk parity is a long-only strategy with negatively correlated assets that is sensitive to volatility spikes in the market and positive bond/equity correlation; managed futures funds (CTAs) are long/short strategy funds aimed at capturing trends in the market (in either direction)
2. The conditions that could lead to forced-model selling impact CTA behavior only such that wide spread selling will generate a downward trend  
3. Since CTAs look to capture trends in the market, they are likely to apply additional downward pressure on markets if forced-model selling occurs
4. Additional pressure from CTAs may further exacerbate the sell-off from risk parity funds

More details from Goldman's systematic strategist Paul Leyzerovich below…

Our baseline expectations are more firmly in sell mode for CTA trend followers

Coming into today, in a flat mkts scenario, we expect >$40bn (or >2x std dev in our work) of global eq sales from this community for the next 1w and >$80bn for the next 1m....

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Today's action didn't look like CTA's, the whipsaws were too quick, it looked more like volatility sellers getting adjusted on the fly.
Here's a Zerohedge right after the close: 

S&P, Nikkei Futures Crash After Hours As VIX Volumes Hit All Time High

Here is the simple summary of what happened today courtesy of Morgan Stanley's quants: market liquidity collapsed while VIX futs volumes hit an all time high, as countless vol-sellers were forced to cover.
The details from Morgan Stanley's quant team:

• Liquidity in the top of the S&P futures book 50% worse than Friday.
• Avg available size is 111 contracts since 3PM today on the top of the S&P book. Friday avg. size was 209 (for the entire day
• Beginning  of Jan this was 800.  End of Jan it was 300.
• VIX futures traded 897k total across the curve so far today.   Previous FULL DAY record was 850k  (aug 10 2017)

For those wondering, the market on close imbalance was a whoppoing $3.4 billion.

What does this mean in practical terms: as shown in the chart below, the crash is continuing after the close.

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