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Finanshuses grafer: “Brutal – Welcome to extreme markets” – tid til at samle lidt op i de mest smadrede?

Brutal

A brutal day across markets. Semiconductors are getting destroyed, Nasdaq is breaking critical technical levels and volatility is exploding, with VVIX surging an extraordinary 45 points. Meanwhile, the mechanical selling machine is kicking into gear, with vol-control deleveraging, CTA selling and negative dealer gamma threatening to amplify the moves. Yet beneath the panic, some extreme positioning dislocations are starting to unwind, creating opportunities for contrarians. This is not a market to simply sit back and watch, especially if you have the P&L cushion to take some risk.

SOXxed

It is hard to find superlatives to describe the SOX crash, with the index down 10% as of writing. The major trend line has given way, the 200-day MA is now far above current levels, and SOX is trading at its most oversold levels since the bull market began. The technical picture is awful, but things are getting so extreme that the contrarian in us is starting to consider dipping a few toes into the water.

LSEG Workspace

The ultimate frustration trade

Nasdaq is becoming the ultimate frustration trade. Sharp selloffs have been followed by equally aggressive rebounds, with neither bulls nor bears able to establish a lasting trend. Breakdowns have invited selling, only for the market to squeeze higher and punish late shorts. Then the rallies faded and the entire cycle started again. Lots of noise, little progress, although tech looks increasingly tired, especially areas like memory.

From a technical perspective, NDX is now crashing below its range lows and the longer-term trend line, while trading well below the 200-day MA. This is getting ugly. The make-or-break levels are giving way.

LSEG Workspace

VVIX: The real panic

The violence in volatility of volatility has been extraordinary. Nomura’s McElligott highlights how the apparent all-clear triggered an aggressive hedge unwind, only for the market to reverse violently. VVIX subsequently surged a massive 45 points, an extraordinary move reflecting the sudden scramble for protection. Traders went from unwinding hedges to desperately chasing them again. Welcome to extreme markets.

LSEG Workspace

Know your semis vol

Semiconductor volatility is exploding, with VXSMH approaching its yearly highs, currently around 64. The options market is now pricing daily moves of roughly 4%. Extreme. Back in October, we highlighted how the divergence between KOSPI VIX and VXSMH had become unsustainable. Korea was pricing in panic, while US semiconductors remained remarkably calm. That disconnect has now closed. For those who played our long semis vol logic, it is time to say thank you and move on.

LSEG Workspace

The $61 billion volatility trap

The volatility explosion is creating another potential selling problem. Nomura estimates roughly $61bn of implied vol-control selling following today’s shock. The important nuance is timing. These strategies typically react with a lag, meaning today’s price action may be loading up tomorrow’s selling queue rather than translating into immediate liquidation. The volatility shock could therefore have consequences well beyond today’s close.

Nomura

CTA trap door

Vanda Research warns that today’s selloff, combined with the explosion in volatility, is bringing CTA selling back into play. Markets appear to have avoided major systematic selling on election night, but the break below 27,600 could now push CTAs outright short. A clean break below 26,800 would likely see CTA exposure collapse toward Liberation Day lows, adding another layer of selling pressure to an already stressed market.

Vanda

Front-running the front-runners

Everybody knows the mechanical selling is coming. Nomura highlights how discretionary traders are increasingly front-running systematic deleveraging, leveraged ETF rebalancing and dealer hedging. Meanwhile, dealers are sitting on roughly $7bn of negative gamma per 1% SPX move. The theoretical risk is a self-reinforcing selling spiral.

But knowing the gamma exposure doesn’t mean the flows are easy to front-run. Anyone who has managed a large short-gamma book knows the agony of deciding when to hedge. Dealers may have already sold in anticipation, adjusted hedges intraday or reduced exposure well before the close. Knowing the potential selling pressure is one thing. Knowing when, or whether, it actually hits the market is another.

Nomura

Be anti-AI

We outlined our long Apple anti-AI take some weeks ago. That trade continues to do very well. Apple is crushing the NDX, but expressing the trade against NVDA is working even better.

LSEG Workspace

Gold technicals

Gold’s shakeout has confused many investors. We are trading back above the short-term trend line that has been in place since late August, but the shiny metal needs to reclaim the 50-day MA ($4,205) to establish a more persistent bullish move. The 200-day MA remains well above current levels, sitting just below $4,500.

LSEG Workspace

Recall the gold dump?

As we highlighted a few days ago, referring to Goldman’s Quinn, gold had already experienced a massive positioning washout ahead of the latest squeeze. Five consecutive weeks of speculative selling saw $19.5 billion dumped, with the final week alone accounting for $8 billion. That included $5.2 billion of long liquidation and $2.8 billion of fresh shorts. Other and Non-Reportable traders accounted for roughly 95% of the latest selling. A huge amount of selling had already taken place before gold started squeezing violently higher.

CTAs in gold

CTAs were running big shorts going into yesterday’s huge squeeze. These have most probably, at least partly, been covered.

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Dybdegående og original
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