Just like late February when we had the first inflation scare-cum-Treasury tantrum, Tech is breaking down, and look no further than Amazon for the evidence.

In just the three days since reporting blowout Q1 earnings which sent its stock to a new all time high, AMZN stock is down over 9% and is on the verge of a correction. Other FAAMGs, most notably Apple which had a just as impressive quarter, are not faring any better.

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However, unlike late February when tech was monkeyhammered mostly as a result of sharply surging yields, this time there is the double whammy of deeply negative gamma.

As SpotGamma wrote overnight, “both SPY & QQQ remain in negative gamma territory which implies higher relative volatility.”

Nomura’s resident x-asset expert, Chalie McElligott, picks on this and in a note this morning writes that while “there is nothing exceedingly bulky or “whale-like” by itself”, there has “been a pick-up with broad Vol / Gamma selling from clients in recent weeks.” The details:

  • This has show via standard overwriter flows in singles and index, but also to the systematic strangle-selling mentioned in the press last week (which looks like the odd-lottish flows in ratios that trade ~3-4x’s a week, while there too is a separate daily overwriter program in one month straddles for example)…all of which has contributed to what has been a very “long gamma” dynamic for Dealers—and thus the “stuck” S&P for about three weeks, pinging around the gravity of the big strikes at 4150-4200
  • The %ile rank of the overall $Gamma magnitude across US Equities index has come-off after recent expirations (SPX / SPY consolidated now a middling 56.6%ile $Gamma / IWM 35.9%ile; EEM 37.4%ile); however, Nasdaq / QQQ’s continue to be the epicenter for how broad index movement could get weird, with -$435.8mm $Gamma which is extremely negative at just 3.8%ile

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Needless to say, negative QQQ gamma + tech selloff = explosive combination, and as McElligott summarizes, “with this “extreme” negative $Gamma in QQQ, we see Dealers increasingly moving into “short Gamma vs spot” territory as well (Gamma “neutral line” at 339.36 vs spot 333.55); similarly, we currently see Dealers “short Gamma vs spot” too in both IWM (226.19 “neutral line” vs 224.79 spot) and EEM (54.29 “neutral line” vs spot 53.59)”

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Tech’s inability to breakout higher has crippled sentiment, and as the Nomura quant concludes, following what had been a strong recovery in April for the Tech sector and “Secular Growth” (aided by the stabilization in USTs and relative “bull-flattening” off the extremes of the March Rates selloff / “bear-steepening”) “our Nomura Sector Sentiment analysis shows that WoW, we have seen Tech sector sentiment collapse (again)–with an 85.1%ile score a week ago, but today printing down at 53.9%”

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And as the tech revulsion spreads, dragging Nasdaq lower…

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… it is starting to hit broader indexesm such as the S&P and Russell…

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… which just dipped below its 50dma.

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