Goldman: Watch For A Massive Squeeze In Energy After The Biggest Shorting Frenzy In Five Years

The S&P 500 closed at 5745 on Thursday (9/26) recording its 42nd record close of the year (on pace for 53 ATH closes this year) as the market digested a barrage of positive news last week including monetary and fiscal stimulus developments out of China, inflation shortfalls in Europe and the US, resilient economic growth in the US, and a rock solid earnings report from Micron. For context the most ever record S&P500 closes in a single year, was 77 in 1995 (the 70 in 2021 was the second  highest).

Not all was sunshine and rainbows last week as energy stocks got hit hard as oil sank on heels of negative supply headlines: “Saudi Arabia is ready to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output, in a sign that the kingdom is resigned to a period of lower oil prices” the FT wrote in an article eerily reminiscent of a typical Reuters hit piece (this development more than offset any upside pressure that would have typically come from China stimulus and Middle East unrest, and made many wonder if it was published on purpose just to keep oil prices depressed).

So what does it all mean? As Goldman's John Flood writes in a Saturday note (available to pro subs), the max pain trade in the market right now is index sharply higher led by cyclicals over defensives. That's because as we noted previously, most investors are currently positioned for a market selloff into election and then are bracing for a potential move higher after we know with certainty who the next president of the United States is...