Short squeeze on deck. The Market Ear.
Nasty
McElligott sums it up well. This is the scenario nobody (few) wanted: “…positioning and leverage exposure de-risked, Macro-Bearish and underweighted the “Mag8” U.S. Equities in general vs R.O.W. …but now suddenly, it’s MegaCap Tech Secular Growth which is awkwardly then leading to the Upside , in a rally which nobody has had enough on to “capture”…but are now being forced to buy-back“.
Plenty to buy
Volatility control punters have puked equities. They have plenty to buy should volatilities calm down a little. “Daily SPX moves of ~1.5% per day held constant over the next two weeks would generate ~+$30.8B of Vol Control buying alone…daily 1% changes would rationally generate even larger buying at +$32.7B…and even daily changes of 2.5% for the next two weeks would still see $20B of demand from this cohort”.
Source: Nomura
“Implied” bid
The net AAII bull-bear spread remains very depressed. This remains, all things equal, an implied bid for this market.
Source: Refinitiv
Lot of bears
Investor intelligence survey shows the crowd is still very bearish.
Source: GS
Retail ain’t retreating
Retail traders net bought $40B in April, surpassing last month and setting a new record for the largest monthly inflow (JPM).
Source: JPM
That was quick
SPX rate of change (8 days) not too bad…
Source: Refinitiv
All good things come to an end
Gold remains under pressure, continuing its downward momentum. As of writing, it is testing the 21-day moving average. A close below this level—and the key $3,200 support zone—could open the door for a move toward the trend line established since January, which aligns with the 50-day moving average near $3,100. Full gold note here.
Source: Refinitiv
Gold is not risk on
Gold vs SPX (inverted) needs little commenting.
Source: Refinitiv
DXY – haven’t seen this in a while
DXY trading around the magical 100 level. Note the ultra short trend line about to be taken out. The 21 day comes in around 100.5. A close above that level, and things could become squeezy for the hated dollar. More on the latest FX moves here.
Source: Refinitiv
Need dollars to chase tech
The short term gap between US equities and the dollar is very wide.
Source: Refinitiv
I’ve seen scores of these VIX compression rallies over the years. Vol Control, CTAs, momo, and systematic trading strategies always get caught on the wrong side of the boat.
Very often, the resulting squeeze is enough to lift animal spirits in consumers for growth look over whatever valley triggered the sell-off.
Is that the case as US shelves empty, consumers balk, capex shunts lower, and layoffs begin?
I have my doubts owing to the unprecedented nature of it.
But it is wise to remain cognisant of the power of contemporary markets to deliver their own end.
