PremiumStocks Slammed Below Key Support As Oil, Yields Soar
If yesterday was an "everything green" kinda day (albeit with low volume, and even lower liquidity) today was the mirror image as everything sold off (except energy).
What was notable about yesterday's meltup, is that there was no clear catalyst for the buying: yes, the macro data (ADP and Service ISM) was very strong, but we are currently in a "bad news is good news" regime, so strong data should have hammered stocks not lifted them (since rate cut odds drop). Not to mention the escalating war in Iran.
If it's not macro, fundamentals, or geopolitics, then we are clearly in a positioning and flows technically-driven market. Just ask Korea, where after the biggest drop ever (-12%) on Wednesday, Stocks surged as much as 12% on Thursday, and are now facing another limit down session when they reopen on Friday (futures are already a bloodbath).
What about the US? Well, it started off tentatively, with futures trying to stage a jump after Iran said it had been willing to negotiate the destruction of its uranium stockpiles in return for “something good” during talks with the US before the strikes began (suggesting it is still willing to negotiate), but that failed to stick... and then spoos quickly sold off after cash trading opened...
... before hitting session lows after Bloomberg reported that the Trump admin is planning to require export permits for global US chip sales, and especially those from Nvidia and AMD, to limit the spread of US AI technology.
Today's selling pushed the SPX below the critical 100 day moving average (6836) which had served as a key support ever since LIberation Day, when it was last breached, and made sure the market didn't tumble back in November.
Besides semis, selling was widespread...
... with just energy barely peeking into the green...
... which is odd since WTI was up almost 10%, rising above $80 for the first time, and even as high as $82...
... before losing steam quick on a Reuters report that that China was in talks with Iran to allow crude oil and Qatari LNG vessels safe passage through the Strait of Hormuz (as we said would happen earlier).
Before we look at other asset classes, let's take another look below the surface, where the news that OpenAI was abandoning checkout for shopping triggered a bid in Goldman's AI at Risk for Disruption basket which jumped more than 2%
... as did the Domestic Internet basket +124bps.
Notable laggards on the day.. Bitcoin Sensitive (GSCBBTC1) tumbled -650bps for obvious reasons: yes, bitcoin tumbled as a result of the broad-based selling, as well as the jump in the USD and 10Y yields.
High Beta 12M Winners (GSCBHMOM) also tumbled as much as -550bps...
... as did Liquid Most Short (GSXUMSAL), which dropped 2% before reversing much of their losses.
Here, a quick aside: recall, one wee ago we wrote the rhetorically titled "Will Anthropic's Clash With Hegseth Trigger Historic Software Short-Squeeze" and since then the IGV hasn't had a down day, mostly thanks to Anthropic getting blacklisted by the Pentagon which in turn sparked a massive short squeeze in this most hated of sectors: and why not, if Anthropic is hated by the government, it's safe to say that it's unemployment boosting agents will hardly get a welcome reception by the White House either.
Some other drivers of Software strength according to Goldman: 1) oversold conditions.. 2) stocks stopped going down on bad news - WDAY +25% from post earnings low tick; 3) macro backdrop has grown more supportive of domestic / secular businesses; 4) anthropic “partnerships” w/ incumbents vs. displacement.
Another reason for today's jittery meltdown is that liquidity remains non-existant: ETF % of the tape is extremely elevated (40%) alongside light top of book liquidity ($4.8mm), similar to LIberation Day levels.
Technicals are also ugly: CTAs are sellers in a flat tape of $5.56 billion into the US.... of course, this increases to $18.87 billion in a down tape with 6760 the all important medium term trigger level.
And while liquidity is dismal, volatility is literally of the charts: here is where 6 month at-the-money implied vol is for:
- NKY: 100th percentile
- Kospi 100th percentile
- Gold 97th percentile
- Platinum 100th percentile
- Aluminum 94th percentile
- Oil 97th percentile - the highest since the VIX was at ~89 in the depths of the global financial crisis.
Away from equities, 10Y yields rose for a 4th straight session, now straight up since the Iran war started last Friday, when 10Y yields were 20bps lower.
While the meltup in yields is understandable should the commodity inflation spike persist and push inflation higher (although the most likely outcome there would be a stagflationary recession which results in much lower
That takes care of the positioning and technicals; as for the flows, Goldman's trading desk reveals the following (as of 2pm ET today):
- We are currently a 4 out of 10 in terms of overall activity levels and currently skewed -1% for sale across the floor
- LOs are skewed better for sale led by selling most concentrated info tech, macro products, financials versus demand in hcare and materials
- HFs are currently skewed better for sale led by supply in macro products, comms svcs, materials, and staples versus demand in info tech and hcare.
Finally, today's chart of the day is a surprise: as Bloomberg shows, despite all the moves under the hood, the S&P continues to see the tightest range to start the year in history!
