Is Something Cracking Beneath The Surface?
Sustainable?
Or do we see spillover effects kick in soon? SPX vs Apollo and KKR.
Source: LSEG Workspace
Add it to the watchlist
Private equity is trading very poorly. Make sure it’s on your daily chart watchlist. The SPX vs. PSP gap is now very wide.
Source: LSEG Workspace
Credit diverging
Credit and bond protection have moved in tandem for a long time (resetting lower), but the latest move higher in credit protection has left bond volatility behind. This divergence is new.
Source: LSEG Workspace
Private equity knows?
Credit protection moving in close tandem with the PSP (inverted). Looks like private equity "knows" something?
Source: LSEG Workspace
Breaking
Hartnett Friday poetry: When bank-loan funds start to break, it has historically preceded “bad events”, CNY devaluation, COVID, the UK pension crisis.
If SRLN holds $40 and XLF holds $52, we’re probably fine. But if those key levels give way, that’s your signal an “event” is brewing, a proper flush in risk assets.
It likely gets priced through a sharp March spike in the US dollar (DXY back toward 100) and a heavy bid for duration (ZROZ already +5.6% YTD), tightening financial conditions further — until either the Fed pivots or AI capex cuts relieve credit stress.
Source: BofA
Short vs long
Software short exposure is at a seven-year high, while long exposure sits at a seven-year low. The exit could prove tight. Latest note on this topic here.
Source: GS
Source: GS
Retail is rotating
Software (IGV) — Sentiment +10% | Net flows +1.5z | ETF volume +4z (1yr lookback)
Semis (SMH) — Sentiment -7% | Net flows -0.3z | ETF volume +1z
That positioning skew suggests retail could catalyze a tactical mean reversion in the relative pair according to JPM.
Source: JPM
King XLE
In mid-December, we flagged the enormous squeeze risk in energy: “XLE continues trading inside the huge range that has been in place for years… when things eventually break out, vacuums are created.”
XLE has surged and continues printing new recent highs as of writing.
RSI is overbought, but the ETF has traded in overbought territory for weeks. As we all know, overbought conditions can persist far longer than most expect.
Source: LSEG Workspace
The one and only
Korean inflows need a bigger chart. Latest note here.
