The gap between small caps (IWM) and big tech (QQQ) performance has been jaw-dropping.
But are small caps gearing up for a rally?
As the tech trade has become more crowded, IWM Call volume spiked.
Take a look☟
Small Caps (IWM) vs Big Tech (QQQ): Astonishing Underperformance
As regional banking struggled, this made the Russell unapproachable for many.
Leading to significant rotations back to mega-cap tech and away from cyclical.
Further spurred on by the ongoing AI optimism and robust earnings.
Which now appears overcrowded.
IWM Call Options Spike: Relief Rally on the Horizon?
Interestingly, a recent surge in IWM call options activity suggests traders may anticipate a relief rally.
Which would likely come following a debt ceiling deal of sorts.
CTA Positioning: Poised for Short Squeeze?
CTA positioning has turned extremely short due to the ongoing downtrend.
A short squeeze might be brewing, but better news from banks and Washington is needed to break the deadlock.
Implied Vols: IWM Resilience Since March
Understandably, implied vols in IWM have outperformed other major US indices since March.
Meaning, it’s a perfect time to keep a close eye on small caps and mega-techs as these market dynamics continue to unfold.
➠ Get more color on this in the attached clip from today’s Macro Options Spotlight ↴
➠ Want to know what our Volatility Dashboard for RTY is telling us?
➠ Watch today’s full Spotlight video below ↴
Market Whiplash! | US Rallies, China Stumbles, & Commodity Chaos | Macro Options Spotlight | May 18, 2023
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Thank you for making it this far.
Please share this with any investors and traders in your life looking for where a relief rally is most likely to play out.