On November 6 we wrote:
"…by now everybody knows energy sucks and everybody hates the space. XLE's downtrend is impressive, but squeezes can be brutal when they occur."
It has been a truly brutal squeeze with XLE adding 6.5% today only, but this is what happens when hated must be loved in an illiquid market.
What is interesting to see is that despite the XLE melt up, XLE vol (VXXLE) has remained well bid.
We are starting to see similarities to the tech options buying driven melt from August where assets move higher and call buying leaves dealers short gamma, chasing deltas higher and keeping vol well bid.
Tech speculation has just moved to other sectors…