Markets Are One Break Away From Getting Ugly
Everything is lining up…for a bigger move
Everything is lining up. The mini death cross is here, Nasdaq is hanging on to 24k, and rates are knocking on 4.4%. Volatility is rising where it matters, positioning is crowded in the wrong places, and if key levels break, the flow-driven selling could get nasty.
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. Full note here.
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
Here we go
US 10 year flirting with the huge 4.4% level. A decisive close above this resistance area and rates risk squeezing more.
Source: LSEG Workspace
Selling could get nasty
Scenario projections for options + levered ETF dealers and volatility control funds show that downside moves come with mechanically increasing selling needs.
Source: Nomura
Don't misread skew here
That’s true, SDEX is down, but don’t fall for the simple explanation that investors are just monetizing puts. Without getting too technical, a slow downside move in SPX tends to compress skew mechanically. As spot drifts lower, you move down the volatility surface, and vanna-related flows push implied volatility lower on the downside. You don’t need people selling puts. In a sell off (not crash), skew compresses mechanically. You don't need to understand the above from a technical point of view, but don't listen to the monetization argument only.
Source: LSEG Workspace
Premium almost vanished
Tech's premium over the S&P 500 has all but vanished: now at the lowest since early 2019. More charts on 100 days since the tech peak here.
Source: @dualityresearch
Brent bouncing
Brent tested the steep uptrend in place since early March. Momentum remains strong, price hasn’t even pulled back to the 21-day MA. The 50% retrace of the large down candle is the near-term resistance, just a few dollars above. The highest close so far sits only about $6 higher. Latest oil note here.
Source: LSEG Workspace
EM vol explosion
EM “VIX”, VXEEM, is back near Liberation Day panic highs, just as everyone decided to chase the EM bull. More on EM here.
Source: LSEG Workspace
Do or die in software
Software ETF, IGV, is approaching range lows again. This is the ultimate make or break for this battered sector. Full note here.
Source: LSEG Workspace
One trigger is all it takes
This is one of those setups that doesn’t need a catalyst. Just a trigger. And the downside can get messy fast.
