“WEN CRASH?” one popular strategist asked on Tuesday, employing a crypto meme for comedic effect.

Considering the scope of the equity rally during last year’s final two months, it was understandable that many casual market observers came into the new year expecting a correction. And while the first several sessions were touch and go, the conditions for a real selloff, let alone a proper drawdown or an outright crash, still aren’t there.

Yes, bullish individual investor sentiment ended 2023 near the highest levels of the year amid big inflows to US equity-focused ETFs and mutual funds, and yes, systematics re-leveraged into the rally, but there was scant evidence in the options space to suggest key investor cohorts were all-in. In fact, demand for upside optionality suggested the opposite.

“[The] persistent extreme rank in call skew relative to such incredibly ‘meh’ demand for downside hedges [is] part of the reason I just don’t see conditions at this juncture for a big index pullback,” Nomura’s Charlie McElligott said Tuesday.

“The messaging continu[es] to be that we need steep skew in order to see dealers in a short gamma/short vega position during a spot selloff, which is prerequisite for downside accelerant flows,” he went on, before editorializing around the figures shown above. “Instead, here we are again down at 18%ile in SPX 3m 25d put/25d call skew, 19%ile 3m SPX put skew and an awful 4%ile 3m SPX ATM vol.”

I’ve been persistent in highlighting Charlie’s commentary around this point, and if you internalized the message, you stuck around in December for the rest of the melt-up. (Not investment advice, obviously, just me highlighting what I think’s notable among the deluge of commentary that finds its way to me every weekday.)

“The key to driving downside hedge demand is that we simply need to see active funds keep getting long-er and taking up net exposures, as they ‘follow the Fed’s lead’ like the Pied Piper telling you to get long risk assets,” McElligott went on, adding that we’re “just not there yet.”

As the figure above shows, positioning for the long/short crowd as well as mutual funds isn’t extreme.

Those two cohorts, Charlie added, exhibit “exceedingly middling” exposure on a five-year lookback and still have “plenty of room” to dial it up.

Until they do, the answer to “WEN CRASH?” may continue to be “Not yet.”