Markets are rallying on the news that Trump said expects the U.S. military forces will leave Iran in “two or three weeks.”
Still, it is difficult to say if this is the start of the true TACO trade. Indeed, it looks more like a brutal short squeeze. Over the last 2 weeks positioning has flipped rapidly. What began as a measured de-risking has accelerated into a full systematic unwind, with flows, gamma, and liquidity all reinforcing each other in the same direction. When positioning resets this aggressively, it rarely resolves cleanly. The next move is often dictated more by market mechanics than by fundamentals. And this is what took place yesterday. CTAs have swung from heavily long to decisively short in a very short time. Goldman Sachs estimates roughly $184bn of global equities have been sold over the past month, pushing positioning to a net short of around $47bn—approaching levels last seen during peak “Liberation Day” stress. Their projections suggest that upside now represents the largest convexity risk. We’ve seen this pattern before: sharp CTA reversals tend to be followed by meaningful market rebounds. From a geopolitical, macro and fundamentals perspectives, there are still many unknows: 1/ if the US leaves the region in 2 weeks, who will tale care of the Strait of Hormuz ? 2/ What will be the impacts on GDP and inflation? 3/ Will companies come with weaker guidance during Q1 reporting season? Source: GS, TME
In considering Tuesday's rally, don't forget that the quarter-end pension rebalance was estimated by Goldman at $34bn, the 8th largest since 2000 and a top 10 buy imbalance in history.
$34bn to buy in equities ranks in the 94th percentile amongst all buy and sell estimates in absolute dollar value over the past three years and in the 96th percentile going back to Jan 2000. Source: Neil Sethi on X, Goldman Sachs
Silver printed a large hammer candle not long ago, marking a short-term flush. Since then, price has consolidated, and yesterday we saw the first “serious” upside candle in a while.
We’re now close to breaking above the downtrend line in place since the top, as well as the 100-day. Is silver about to turn sexy again? Source: TME
Since Exxon was kicked out of the Dow Jones "Industrial" Average and replaced by Salesforce in August 2020, Exxon is up 325%. Salesforce is down 32%
Source: zerohedge
Private Credit’s Hidden Software Risk
Top private credit funds Apollo, Ares, Blackstone, and Blue Owl understate software exposure, averaging 25% vs. 19% reported. Blackstone leads at 33%, Blue Owl nearly doubles its reported share. Rising AI fears make this sector a key driver of record fund withdrawals, highlighting larger-than-expected risks. Source: Will Schryver, The Wall Street Journal, Global Markets Investor
With markets getting close to oversold, everyone's hedged and global CTAs massively net sellers, there is some dry powder if the TACO trade finally takes place
Source: Goldman Sachs, RBC
Could we see more pain?
Yes, on the surface, the S&P 500 looks nearly oversold, but underneath, the situation looks different with only 11% of SPX constituents being oversold. Source: TME, Bloomberg, GS
The sp500 technical picture remains pretty much the same: not pretty
We’re now well below the 200-day, with the 21-day crossing below it, a “light” death cross. RSI is at its most oversold levels since the Liberation Day panic, so a bounce is possible. But beware of the "catching a falling knife" strategy - very often a risky one. Source: TME, LSEG Workspace
