The Two-Way Panic Market
Two-Way Volatility
The market remains trapped between growing volatility and growing skepticism. Sentiment has deteriorated sharply, tech volatility remains elevated, and positioning asymmetries continue to dominate price action. Beneath the surface, several beaten-up trades are starting to show signs of life.
Volatile range
Plenty of noise and volatility, but no new medium-term trend. Neither side has managed to establish control, suggesting the market may need to consolidate further before the next directional move emerges.
For now, support comes in around 28,500, while resistance sits near 29,650 and then the all-time highs.
The second chart shows the bigger-picture setup.
Source: LSEG Workspace
Source: LSEG Workspace
Bull/bear
AAII bullish sentiment has dropped to its lowest level in months, while bearish sentiment has risen to the highest level in months. The crowd is becoming increasingly skeptical.
Time for the squeeze to frustrate the crowd?
Source: LSEG Workspace
Massive convexity
Negative gamma remains uncomfortably large. Between options positioning (~$5 billion per 1% move) and leveraged ETF exposure (~$8 billion per 1% move), the market is sitting on a massive amount of convexity. The result is a setup where relatively small moves can quickly snowball, amplifying whichever direction the market is already heading. More here.
Source: Nomura
Source: Nomura
Mostly a tech issue
Tech remains at the epicenter of the volatility shock. VXN continues to trade at a substantial premium to VIX, highlighting persistent stress in growth and AI-related equities.
Second chart, VXN vs. VIX ratio, shows the "structural" bid in VXN very well.
Source: LSEG Workspace
Tech vol is fundamental
Consensus still appears too conservative on hyperscaler capex according to GS. Analysts currently expect spending to reach roughly $920 billion in 2027, implying a sharp slowdown in growth.
If AI investment follows the path of previous transformational infrastructure cycles, hyperscaler capex could reach roughly $1.1 trillion in 2027. In a more aggressive scenario, cash flow generation and debt market capacity suggest spending could approach $1.4 trillion, writes the investment bank.
The trading implication is straightforward. Bigger capex means bigger earnings revisions for AI infrastructure beneficiaries. The problem is that the market already knows this. Expectations, positioning and valuations remain elevated, increasing the likelihood of violent repricings as investors continuously reassess the ultimate size of the AI buildout.
Nomura's chart highlights the same dynamic from another angle. Free cash flow is increasingly being consumed by the AI buildout. Cash carries virtually no volatility. AI investments, future earnings and capital markets do. As hyperscalers replace cash with capex, balance sheets—and investor expectations—become inherently more volatile.
In other words, if capex keeps surprising to the upside, expect earnings upgrades. Also expect more volatility.
Source: GS
Source: Nomura
Time for IGV... again
We laid out the software squeeze thesis on April 14, and the trade delivered far faster than expected. While software remains one of the most underowned areas of the market structurally, a historic squeeze into major range highs made taking profits more attractive than chasing further upside.
That caution proved well timed. IGV has since puked hard and is now trading back near the original breakout levels. With short-term supports coming into view, this is a market we are becoming interested in again. Latest note here.
Source: LSEG Workspace
Big in silver
Silver has staged an aggressive reversal around the key $64 level. Both the early-February and late-March lows were marked by large hammer-like candles that bottomed in this area. Today's price action is starting to look very similar.
Importantly, silver briefly broke below its 200-day moving average a few sessions ago but is already attempting to reclaim it. Was the breakdown nothing more than a shakeout?
Source: LSEG Workspace
Oversold
Yesterday, silver reached its most oversold levels since the current bull market began. There is plenty of room for a squeeze higher before conditions start looking overbought again. Latest silver note here.
