Goldman says tech stock 'up crash' is sign of even more gains to come

• The S&P 500 has rallied 7% since mid-April while the VIX remained stable below 18, driven by aggressive call-buying in tech stocks and broad-market hedging
• The current 0.4 correlation between Nasdaq 100 and its call options is the highest since January 2017, when stocks rallied 20% (S&P) and 32% (Nasdaq) that year
• Goldman notes this pattern historically yields 2.7% average monthly returns versus 1.5% typical returns, though the 2017 instance was followed by the 'Volmageddon' event when VIX spiked to 50

Summary:

Goldman Sachs analysts identify a rare market phenomenon called an "up crash," where stocks rally rapidly while volatility remains subdued—a pattern historically followed by continued gains. The S&P 500 has surged 7% since mid-April, yet the VIX has held steady below 18, showing little change despite multiple market records.

Key Technical Insight:

For only the fourth time in a decade, the correlation between the Nasdaq 100 index and its 1-month call option price has turned positive, currently at 0.4—the highest since January 2017. Historical data shows average 1-month returns of 2.7% following this correlation pattern, compared to typical returns of 1.5%.

Market Drivers:

The unusual volatility dynamic stems from aggressive call-buying in high-performing tech stocks combined with broad-market hedging activity. Traders view the VIX as relatively cheap compared to implied volatility in popular sectors like technology and semiconductors.

Historical Context:

The 2017 parallel is notable: that year saw the VIX reach an all-time low of 8.56 in November, while the S&P 500 gained 20% and the Nasdaq surged nearly 32%—the calmest stock market year on record.

Risk Warning:

Goldman notes a significant caveat: the calm of 2017 was followed by "Volmageddon" in Q1 2018, when the VIX spiked to 50 and short-volatility ETFs collapsed.

Conclusion:

Goldman's Brian Garrett dismisses concerns that current conditions signal an imminent unwind, stating "the data does not corroborate" such fears and suggesting further bullish momentum ahead.