What’s Happening in the Market

Today was one of the largest selloffs since 8/5, with the SPX closing -2.1% to 5,530. As per our AM note, “Below 5,590 we think the scales tilt toward the downside, with a large support zone at 5,550 – 5,440. ” So while some of today’s downside synced up with that view, the downside seem to have some extra “punch”.

Why?

Below we have semi-ETF SMH (purple) vs SPX (candles) and the equal-weight SPX (RSP, in red). As you can see, SMH was pounded -5.5% today as NVDA lost 9% to close at 108. NVDA alone was a 60-70bps drag on the SPX/NDX.

However, over 10% of the S&P500 is semi-conductors, with another 10-15% directly tied to semis/AI, and so when these stocks tank, the SPX/NDX go with it.

When you shift to a equal weighting index, like RSP, the selloff was a much more benign 1%. With that, the takeaway here is this seemed a bit more about equity-rotation than a purge from equities, but that “concentration” brought extra pain.

In this mornings note we also classified this as a “short call” market, and it was call selling (orange) that was the big options pressure in NVDA.

The second thing catching our eye today was the heavy 0DTE flow in the S&P500. This dominated the S&P flow today, as can be see by the 0DTE flow (teal) perfectly overlapping the All Exp flow (purple). The lack of longer dated put buying backs the idea that today was more about rotation and 0DTE games vs material, long term risk. However, should we break 5,500 then we will be changing our view toward that of a material, protracted decline.