Market Trigger and Self-Referential Meltup Feedback Loop

The market is experiencing a massive gamma-driven meltup fueled by US economic growth and mechanical rebalancing in tech/semis ETFs. Nomura's Charlie McElligott warns that this self-referential loop could collapse as options expire and mechanical flows turn into forced selling.

Key Takeaways

• 1.The market is currently in a 'self-referential meltup feedback loop' driven by five factors: US economic reacceleration, earnings growth in AI constraints (Semis/Energy), fund underpositioning, mechanical gamma flows, and leveraged ETF rebalancing.
• 2.A record $2.6 trillion in S&P calls was purchased in a single week, creating an unprecedented gamma squeeze characterized by 'spot up, vol up' dynamics.
• 3.Leveraged ETF rebalancing has contributed +$115B of buying power over the past month, with 85% of AUM concentrated in Tech and AI Semis.

Table of Contents

• Fundamentals from the recent "red hot" US Economic Reacceleration
• Equities earnings growth and positive revisions / breadth
• Leveraged Fund Underpositioning
• Mechanical Flows from "Real" Negative Gamma
• "Synthetic" Negative Gamma from Leveraged ETF "Animal Spirits"
• US Equities Systematic Flows - CTA + Vol Control + Risk Parity
• SMH June 1x3 Put Ratio | Scenario Analysis

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