We’ve kissed 6,750. Momentum’s softening, leadership’s rotating, and the markets breathing heavier than it has in weeks. You can feel it in the candles, that subtle loss of thrust after every push. The market wants to catch its breath.
CTAs are still “max long”, vol control is stuffed, and the data all say the same thing - no one believes in it. Hedge-fund gross sits at record highs while nets keep slipping. That’s not euphoria; that’s exhaustion and doubt.
SPX just logged its fifth straight green session, and yet, implied vol still hasn’t eased. VIX is still holding a bid, single-stock vol remains sticky, and call demand refuses to fade. The crowd keeps reaching for upside protection while the market keeps climbing anyway.
So yes, near-term fragility is very real. The market is extended, vol’s mispriced, and systematics are sitting on a cliff of their own positioning. But cracks don’t necessarily equal collapse.
If you think this is all bearish, you haven’t traded a melt-up before.
I’ve seen a few people say the “pain trade being up” doesn’t make sense, so I thought I’d spell out what I actually mean when I’ve repeated it on here throughout this melt-up and when I originally tweeted it on May 8th.
When I say “the pain trade is up”, I’m not talking about shorts getting squeezed or some massive bearish positioning that’s about to unwind. It’s not about people being net short; it’s just about people being underexposed.
The real pain isn’t in bearish bets; it’s in missing the rally. Hedge funds and even long-onlys have spent most of this year underweight risk, chasing late (LOs have been getting stopped in recently), fading every wobble, and praying for a reset that never really comes. The fear now isn’t being wrong on direction; it’s being wrong on performance.
That’s what I mean when I say the pain trade is up: the path that hurts the most isn’t a crash, it’s a slow, relentless grind higher that forces underexposed managers to capitulate, not because they blew up, but because they underperformed.
It’s career risk, not market risk. Scott Rubner of Citadel Securities calls it, “FOMU” - Fear of Material Underperformance.
Anyway, let’s dig in.