Was That Capitulation…
Volume 168 - The Week Ahead
Last week didn’t threaten the bull market, it changed the positioning landscape.
On the surface, the S&P ripped on Friday and finished basically flat. That's enough for most people to conclude nothing meaningful happened. But beneath the index, single names moved aggressively, and books moved with them.
Gross leverage came down in the biggest step-down since Liberation Day, but this was not a broad de-risking. The selling was overwhelmingly short-led, concentrated in single stocks, and highly targeted. Hedge funds didn't run from risk; they rotated forcefully and leaned into the pain trades. Nowhere was that clearer than in software. I wrote about this in my mid-week thoughts post - ICYMI, see below…
Single-stock shorting hit record notional levels, tech was the most net-sold sector, and software accounted for the vast majority of that pressure, with net exposure collapsing to fresh lows.
I went into last week positioned for a positioning shock, not a gentle pullback:
I shorted ES1 at 6945.5 and realised it into the washout at 6776.5, roughly 25 handles off the low.
I ran a core-satellite S&P hedge, monetising the March 6900 put leg for a solid gain while deliberately keeping the 6900/6800 spread on as structural protection.
I put on a post vol spike gold long at 4660 and took profits near 4950 as the snapback materialised.
Sadly, shortly after I reversed the trade and got stopped out… all for it to go and hit my target shortly after.
I do have a fresh gold trade that I put on Friday..
None of this was about calling a top. It was about respecting positioning, protecting unrealised gains, and making sure a sloppy sell-off didn’t ruin my Q1. And while, I have given back unrealised gains - I am still green on the year and happy with that considering the dispersion…
What we saw last week was not a cycle turn. It was a targeted positioning unwind, amplified by leverage, capped by a violent Friday squeeze, and masked by a flat index close. Nothing ever happens, right?
The key question for this week isn't whether stocks can go higher. It's whether positioning has reset enough to allow the next leg, or whether we're still working through an unfinished unwind beneath the surface. After all, CTA triggers fired last week. They're in sell mode.
Below the paywall I’ll walk through… why software became the fulcrum of the move, what the short-led selling actually tells us about risk appetite and how I’m thinking about positioning and risk as we head into the next phase.