The S&P 500 closed flat today. Underneath the surface, 90 products in the S&P 100 declined.
Broadcom single-handedly held the index together with a 3.5 standard deviation move, closing in on a $2 trillion market cap. Strip that out and the tape is red across the board.
I call this the pain trade meeting geopolitical risk. Shorts are getting squeezed in a face-ripping rally, but the volatility market is telling a completely different story.
The VVIX is sitting at 108. Anything near 110 is the “get under your desk” zone. Professional traders are refusing to give up their hedges heading into the weekend.
Consumer staples got crushed. Walmart dropped nearly 2% and Costco fell 3%. The safety trades that propped up portfolios during the selloff are fading fast.
Meanwhile, financials started rolling over right before earnings season begins. Goldman Sachs, Morgan Stanley, and JP Morgan all report next week.
I have a bearish XLF position on right now. One strike in the money, one strike out of the money. The trade is working.
In tonight’s video, I break down the full picture and what I’m positioning for heading into earnings week:
- The SPX expected move dropped from $167 to $123, still well above normal and signaling elevated risk ahead
- Volatility futures are back in contango but the spread is dangerously tight
- Oil is stuck dead center in its 85 to 110 conflict range, offering zero all-clear signal
- SMH, the semiconductor ETF, is trading 2.5 standard deviations out in what I’m calling never-never land
- Home builders broke the upper expected move this week, and I think they’re a prime short candidate
The pain trade can carry this market further. But the VVIX, volatility futures, and oil all say professionals are bracing for more turbulence.
