Brent Kochuba Says the Legs Holding Up This Market Are Falling Away — watch on tastylive.
Brent Kochuba, founder of SpotGamma, joined tastylive to cover rising correlation across the largest index names, firmer fixed-strike volatility, and where index hedges still look relatively cheap.
Gold sold off hard, rates came down sharply, oil pushed higher, and the latest mega-cap tech earnings gave back their after-hours gains within a session. Brent Kochuba, founder of SpotGamma, joined tastylive to work through what options positioning shows about the supports under the current market, and why he sees several of them eroding at the same time, with rising correlation across the largest index names at the center of it.
Still A Rotation, Not A Sell-Off
This week, the Russell 2000 has had bullish days, while semiconductors have been sold and parts of financials have held their ground. This is a repeating pattern from a week earlier when staples and bonds absorbed the money flowing out of tech. As long as money continues to rotate out of tech and into other sectors, the broader index landscape stays cushioned. The risk is that this cushion disappears if stocks start moving together, which is potentially what is being signaled by rising correlation.
Correlation Is Climbing In COR1M And COR3M
Some of SpotGamma’s key correlation measures have started to move up in this past week. COR1M and COR3M track how closely the largest S&P 500 names move together, and when they rise, index volatility lifts directly alongside single-name volatility. The one-month reading can be noisy into an earnings cluster, but the three-month reading climbing is harder to explain away, because it points to longer-dated volatility building in correlation. Rising correlation is also what takes the rotation trade apart, since hiding in the equal-weight index or in small caps cushions less once everything moves in sync.
Trading Under The 7,690 Risk Pivot
The S&P 500 has been trading below SpotGamma’s risk pivot at 7,690, the level that has separated positive and negative GEX regimes. Price has slipped under it and bounced back repeatedly over the past 10 days, making it difficult to determine a sustainable regime. Tech has also changed character, with a 6% drawdown followed by a substantial rally — which is trend behavior compared to the mean reversion that has governed in recent months.
Downside Demand Is Reaching Further Out
Fixed-strike volatility measures what the market pays for the same strike from one day to the next, and those readings are coming in higher. Three-month put skew is lifting as well, so demand for downside protection is reaching past the short-dated contracts that have dominated most of the flow. The low in VIX arrived on VIX expiration, and volatility has increased since then. Last Friday brought a record in S&P 500 put volume and the heaviest VIX call volume in roughly a year, which is typical of broadening hedging demand.
What Would Confirm The Read?
We encourage traders to watch two things into next week. The first is whether COR3M keeps climbing, since correlation that holds would support the view that rotation is no longer absorbing the selling. The second is the Fed decision, which lands on the same day as another round of hyperscaler earnings. Rates falling sharply while equities fall with them is the combination drawing attention here, and a break of 7,600 would likely bring 7,450 into view as the next reference area.
Watch the full segment on tastylive. Brent Kochuba joins tastylive regularly through the week.