A Different Story Beneath the Surface

Volume 160 - The Week Ahead

Last week was one of those weeks where the headlines made more noise than the price did. Tech cracked, vol jumped, shorts spiked and the NDX finally lost its balance, liquidity vanished, and every conversation had that “is it over” energy to it. And yet when things settled, SPX finished the week just shy of two percent lower and still miles away from anything that resembles real damage. It wasn’t what happened that caught my attention. It was what didn’t.

This market had every excuse to break. Systematics sold into weakness all week, CTAs dumped billions of exposure, vol-control completed one of its largest one-month de-risking cycles of the year, dealers carried less gamma than at any point since summer, ETF volumes hit extremes, and liquidity across the S&P collapsed to levels that would normally trigger genuine disorder. Tech finally gave us an actual wobble where even the strongest names couldn’t shrug off the pressure. And despite all that, the index absorbed it and still closed with a green Friday.

The selling was dominated by short flow. Four-to-one ratio to long selling in some subsectors. Hedge funds trimmed gross but weren’t scrambling for the door. Software and semis took the brunt of the pain, but again, this was hedging and PnL protection. Non-profitable tech got torched for a third straight week, the kind of classic late-year purge that always feels bigger than it really is. Tech told the story better than anything else. NVIDIA put up another solid print, had every reason to ramp and still couldn’t bounce. Most of the megacaps that have carried the entire index all year, suddenly felt heavy in a way we haven’t seen since that brief red week mid summer. IMO this recent price action has not been euphoria unwinding. It’s positioning losing some conviction.

And this is exactly the kind of setup where thin holiday liquidity can turn what looked like a controlled wobble into something that actually matters. Thanksgiving week has a habit of exaggerating whatever the market is already hinting at. Small flows can become big moves very quickly.

As I mentioned earlier, systematics were another key part of the dip. CTAs spent the week selling, but we’re well above the major trigger levels that matter. They’re still long roughly $135B of equities, there was pressure, sure, but nowhere near the kind of structural setup that fuels real left-tail events. It was a cleanup.

Vol-control is sitting in the same place. They spent nearly a month dumping nearly $120B of exposure as realised vol spiked, and now they’re stuck in that awkward zone where a mild cooling in realised vol forces them to re-lever (somewhere in the $60-90B range into early December). People always underestimate this dynamic, but it’s a slingshot ready to be fired. This cohort only cares about realised volatility. Reduce the noise for two or three sessions, and they mechanically start re-allocating. That’s why last week didn’t break even lower IMO. The supply has happened already and the next flows aren’t down.

In hindsight, what stood out more than anything was how predictable the psychology was. Every time we get even a hint of weakness into the holidays, people jump to the same conclusion: “this is the top.” Liquidity disappears and everyone rushes to hedge downside. It’s muscle memory, and amusing how bearish everyone got all of a sudden. It’s not that late November usually wobbles, it’s that whenever it does, the reaction is always the same. It’s the classic late-year Pavlovian response: hedge first, think later, all into a mechanically weaker tape.

That’s what makes this Thanksgiving week so interesting. You walk into it with positioning cleaner, systematics sitting on dry powder, vol-control primed to re-add, and discretionary nets still lower than they probably want them to be heading into December. The market is fragile on the surface, but underneath it’s far more coiled than most people realise.

Crypto told a similar story, and I can’t believe I’m even writing that sentence. I’ve only recently started trading it properly and it genuinely trades like it’s overdosed on adrenaline. No structure, hours or rules, just pure liquidity and emotion. But even in that chaos you can feel shifts in behaviour.

What stood out last week was how orderly the pain was. Bitcoin was down around 10-12%, ETH around the same. It was a steady bleed disguising a positioning reset. Even miner fees, which tend to explode during panic or FOMO, fell to the lowest level in a year.

If crypto was sniffing genuine systemic stress, you’d have expected more stress in both BTC and ETH 25-delta risk reversals. Instead they were doing the opposite… leaning toward higher upside demand over downside protection. Call skew is creeping higher… While I am new to this arena it did feel like the entire space traded like a market that was overextended and needed a rinse. Crypto, for all its insanity, is basically a map of retail appetite IMO, well, from what I have gathered so far anyway.

What all of this leaves me with is a market that looks fragile on the surface but is sitting on something far stronger underneath. We’ve had one of the cleanest positioning resets in months without any structural damage. Risk didn’t capitulate, it took a breather. And now we walk into one of the quietest weeks of the year with a market that’s lighter, cleaner, and far more coiled than people think.

For me, the levels are simple. If we can stabilise above the mid-6600s, the tape has every chance of grinding back into the 6800s before the week is out (ES1). That’s where things get interesting. Above that zone, the tone improves quickly to “we’re so back”. It’s where the people who hedged into the hole last week start to feel and look stupid and probably where vol-control begins to re-add . If the market manages to slow for even one or two sessions, the invisible hand underneath this thing turns supportive fast.

Below 6600, you’d expect a bit more sloppiness - but even that doesn’t change the broader picture for me. We’re still miles away from the kind of structural breakdown levels that matter for systematics. The left tail only comes alive below those deeper triggers, and we haven’t been anywhere near them. The danger here isn’t collapse. It’s still getting caught underweight if the market decides it’s done sulking.

You can feel that reluctance in a few corners already. No one wants to add ahead of a holiday week, but also at the same timr no one wants to carry low nets into the last month of the year either. People hate chasing all year, but they hate chasing in the last 20 trading days even more. It only takes one clean up-day in a thin tape for that psychology to flip. It always has the same shape: confusion, hesitation, discomfort… and then eventually, acceptance.

I’m keeping my book how it is for now. I’ve sized things the way I want them. I’ll adjust if the market tells me I’m wrong, but right now the trend still points the same way it has since early April: up. I’d rather sit in what’s been working than pretend this wobble changed the regime. If anything, the wobble has made it cleaner.

If this market catches even a breath of calm, it’s going to remind a lot of people how quickly a market can move when nobody’s positioned for strength.

Have a great week and for those who celebrate - Happy Thanksgiving !

Fed