Hey trader,
Short interest in the technology sector just hit its highest level since 2021. Put positioning in the S&P 500 is surging.
Traders are piling into downside protection like the world is ending.
Corporate insiders in tech are doing the exact opposite. They are buying at the fastest rate since 2020-2021.
One side of this trade is dead wrong.
The Smart Money Divergence
The options market tells a clear story right now. Put delta positioning in the S&P 500 has surged as traders pile into downside protection.
Short interest in XLK is higher than it was in 2021 and late 2023. Both of those periods preceded major rallies.
Meanwhile, corporate insiders in the technology sector are loading up on shares. Their buying activity just hit levels we have not seen in five years.
The people who run these companies see the numbers before anyone else. They are putting their own money to work while retail traders and hedge funds bet on more downside.
I have seen this setup play out before. Every time short interest gets this extreme while insiders buy aggressively, the market punishes the bears.
The VIX spiked into backwardation last week. Forward returns after that signal tend to be strong.
March also tends to be a bullish month. It often cures the hangover from late February selling.
Why the Oil Fear Is Overblown
Crude oil spiking has everyone worried about stocks. I went back and pulled the data.
When crude oil rises more than 5% for at least two consecutive days, here is what happens to the S&P 500 going back to 1990:
- 10 out of 12 instances saw stocks move higher afterward
- The average gain was roughly 22%
- The only real exception was 2008 during the global financial crisis
- That is an 83% hit rate spanning three decades of data
Oil spikes tied to geopolitical events rarely derail bull markets. The 1990s proved this.
You had the Gulf War, multiple Middle East conflicts, and crude oil surges. The Fed started cutting rates.
That combination helped fuel one of the greatest tech rallies in history. The parallels to today are hard to ignore.
How I Am Positioned
I got bearish at the end of January and positioned short heading into February.
Last week, I started saying it was getting tougher to stay bearish. The setup kept strengthening even on down days.
Now I am dipping my toes back into the long side. By the end of this week, I expect to be fully bullish.
The NASDAQ has started outperforming again. Technology finished recent sessions as the top performing sector.
Chips are showing strength. Software is bouncing harder than semiconductors.
False breakdowns appeared in both the S&P 500 and the Mag Seven. From false moves come fast moves.
The pain trade has flipped to the upside. Most traders are completely unprepared for what comes next.
Positions matter more than opinions. I have mine on.
Do you have yours?
Gianni Di Poce
THEOTrade