Looks Orderly… Until It Isn’t
The setup is getting dangerous
The setup is becoming more fragile, with technical pressure building and volatility dynamics shifting. But positioning is already light, and for now markets are still tracking the usual geopolitical path.
The mini death cross
SPX is trading just below range lows, with the 21-day crossing the 200-day MA. The déjà vu setup remains in play for now. A slightly lower close risks accelerating the move to the downside.
Source: LSEG Workspace
Key levels in NASDAQ
NASDAQ futures are not far from the key 24k support. The 21-day crossed the 50-day a few sessions ago, leaving us at clear make-or-break levels.
Source: LSEG Workspace
The vol gap
The SPX vs. VIX inverted gap remains wide. The initial VIX overshoot has normalized while SPX has drifted lower, but the persistent gap should keep you on alert.
Don’t forget, volatility isn’t trending, which means SPX can accelerate to the downside without a major VIX spike, unless we move into a full-blown crash.
Source: LSEG Workspace
Vol doesn’t need to rise to force deleveraging
Trailing realized volatility is still catching up after a long low-volatility regime, meaning even current levels can force exposure cuts across VaR/target vol strategies.
Even a modest pullback in volatility would still lift realized levels and drive selling, while sustained or higher volatility risks significantly larger, potentially destabilizing deleveraging flows across institutional portfolios.
Source: Nomura
Selling could get nasty
Scenario projections for options + levered ETF dealers and volatility control funds. Down big comes with big selling needs.
Source: Nomura
Surging "exotic" stress
The current Middle East crisis is hitting the more sensitive parts of the market. One clear example is the surge in EM volatility, both in absolute terms and relative to developed markets.
The key question now: does this stress spill over into the US as well?
Chart shows VIX vs VXEEM.
Source: LSEG Workspace
Gonna be a long weekend
The next ~48 hours look tricky as anxiety rebuilds and positioning shifts into the weekend. Outcomes remain wide-tailed.
Base case still feels like limited progress in initial talks, with tensions flaring again but enough hope for follow-up discussions to keep things contained.
The real tail risk is escalation targeting critical infrastructure, desalination and power, which would point to a more prolonged and structural disruption across the Gulf. (GS, Privorotsky)
Many new bears
AAII bear sentiment has surged in recent weeks. Similar spikes in bearishness have previously coincided with market bounces.
Source: LSEG Workspace
Positioning puke
Consolidated equity positioning is underweight, at the lowest levels in 9 months.
Source: DB
The bull in shorts
Median cash shorts taken as % of shares outstanding for the Russell 3000.
Source: DB
Will this equity selloff follow the usual geopolitical playbook?
Historically, markets tend to drop around 6–8%, bottom within roughly three weeks, and fully recover in the following three, often well before the underlying conflict is resolved.
As long as we follow the usual geopolitical script, this can stay orderly, but a deviation risks a much faster, less controlled move.
