Buy High, Sell Low: The Max Pain Market Lives On
From breakdown to bounce...again
We’ve seen this setup before. Panic hits, flows unwind, CTAs puke longs…just as positioning flips, markets stabilize. Now we’re back inside the range, volatility is fading, and selling is turning one-sided again.
Never bet against the big trendline?
Since 2023, the longer-term trendline in the Nasdaq has held, aside from the Liberation Day “roundtrip.” If this is just another positioning unwind, then one rule still applies: never bet against the big trendline.
Source: LSEG Workspace
Back inside
SPX is back inside the "eternal" range as the max frustration market continues. Amazingly enough, the 6600/7000 (futures) range continues to hold. Note we are still below the 200 day MA.
Source: LSEG Workspace
Less VIX panic
VIX has come down sharply since peak panic hit the market. The chart shows SPX versus the inverse of VIX.
Source: LSEG Workspace
Computers front running?
We’ve seen this movie before: CTAs dump longs, flip short, and then get caught as markets snap back.
Source: GS
CTAs in numbers
"CTAs have sold $78 billion in the last one week and $146 billion in the last one month… 1 week flat tape we have them modelled as selling an additional $47bn of equities and officially flipping to net short". (Goldman's Garrett)
Source: GS
SPX and CTAs
Buy high, sell low agony playing out again. BofA on CTAs and equities: "Our models indicate faster CTA models are already leaning short equities, while slower trend models remain nearer to flat/residual long for now."
Source: BofA
Source: BofA
Everybody selling
Dealers are short gamma. Discretionary funds have been selling for weeks. Systematics have dumped ~$150bn. Now long-onlys are joining in. (Tony P)
NAAIMed
Lowest reading in a while.
Source: NAAIIM
Doing exactly what it should
Credit where credit is due. DB pretty much nailed the recent lows as they outlined this chart late last week. Let's see how things develop from here.
If flows remain one-sided while volatility continues to compress, the setup for a squeeze builds quickly from here. When everyone sells at once…The market tends to do the opposite.
