Some unlucky folks on the buy-side might be trapped in a “doom loop” with little choice but to perpetuate their own suffering.

US markets exhibited the feared “SUVU” dynamic on Thursday, which can be indicative of instability depending on the circumstances.

The “spot up, vol up” phenomenon contributed to a “substantial negative feedback loop problem within underlyings” for the Long-Short crowd, Nomura’s Charlie McElligott wrote Friday.

Last year’s winners (so, low vol names, defensives and quality) are under pressure, concurrent with rallies across some of 2022’s consensus “trash” shorts, which are swept up in an increasingly speculative, unstable squeeze.

“Stocks have been ‘crashing-up‘ on a force-in, with all-time record call volumes seen yesterday in US equities options, yet against mechanical risk management-induced de-grossing as evidenced by multiple Momentum / Low Risk / 1m Reversal Factor implosions,” McElligott said.

He showed a panorama of equities L/S and factor themes, which plainly exhibit an “Opposite Day” (if you) juxtaposition between 2022 and YTD returns.

“Single-name short books were all of the L/S alpha last year, as managers pressed unprofitable tech and high valuation cash burners, but now people are trapped in those same roach motels in this ‘turn,'” Charlie went on, detailing a “desperate” attempt to cover those positions and get nets higher into the runaway rally on the benchmarks.

Closing the (doom) loop, this “peak 2022 unwind” trade, as McElligott called it, is becoming “increasingly painful.”

Funds are trying to net-up, but the capitulatory “cover and grab” is contributing to the increase in implied vol, which in turn “feeds into gross-down pressures, as your portfolio vol expands through [your] risk budget,” he said.