Heading into today's CPI print, one of the most notable positioning technicals that helped push risk assets higher (since it isn't buybacks which are about to enter their new blackout period starting Friday), was that CTAs went from furious sellers just two weeks ago, to aggressive buyers late last week. Well, after today's historic rout which saw the S&P tumble over 4%, the most since June 2020, and the Nasdaq plunged more than 5%, at least there is no more doubt which was the systematics are leaning.
First, here is JPM equity derivatives strategist Bram Kaplan, who echoed Nomura's Charlie McElligott writing that “we’re back to a material put imbalance on today’s sell-off" and estimates that "between option hedging flows and the ~$15Bn levered ETFs need to sell based on today’s moves so far", there’s risk of continued downward momentum. Worse, in a follow up, Kaplan confirms that “CTAs probably are already selling on today’s move, as we crossed back through the 50d & 100dma (that were taken out on the upside on Friday) on SPX (at 4040 and 4023) and NDX (at 12619 and 12456), and the 50don RTY (at 1863)”
However, just to add in some extra complexity, the JPM derivatives expert adds that "it’s hard to say how much of today's move was pre-hedged or driven by speculators pre-positioning for a gamma squeeze into the close (which could result in buying/a reversal as they unwind their shorts).”