"Fast money" is so cautious that it has instead laid the groundwork for a rise: Is the S&P 500 aiming for 8000 points?

In the past few months, investors have adopted a defensive stance in response to market uncertainty. However, as caution becomes the prevailing sentiment, a counterintuitive situation is forming: the real "pain trade" for the market is actually upward movement. Although overall positions remain net long, the directional risk exposure of "fast money" is at its lowest level since the "liberation day" in April 2025. Data from Goldman Sachs' prime brokerage business shows that the net leverage ratio of U.S. long-short strategy funds dropped to 47.6% last week, with the long-short ratio slightly below 1.6. Both of these indicators are at their lowest levels in the past year. While total exposure has increased, it is only at the 19th percentile historically. Overall, the rate of increase in short and hedge positions is outpacing that of long positions. Bobby Molavi, head of execution services for Goldman Sachs in Europe, the Middle East, and Africa, stated that current positioning is "much cleaner than before." He believes that some bubbles have been deflated and that the phenomenon of retail investors chasing gains seems to have weakened. "I wouldnt say peoples positions are too low, but compared to June, the positions are far less crowded. Moreover, the regional/sector rotation and stock performance in August also seem to bring some diversification." The information behind this is noteworthy. Ahead of significant events in August like the Jackson Hole global central bank summit and Nvidia's earnings report, hedge funds were generally unwilling to increase directional exposure. Now that these key events have passed, the outcomes have been mixed: Nvidia's better-than-expected performance reassured the market's confidence in AI trading, but monetary policy has seen a repricing toward a more hawkish stance. This week, the yield on the U.S. 10-year Treasury bond briefly exceeded 4.8%, putting some pressure on the stock market. The next two weeks will be a critical window, as the likelihood of a rate hike at the Federal Reserve meeting on September 15-16 is now close to 70%. U.S. non-farm payroll and inflation data may reinforce the existing logic or completely reverse the market narrative. However, against the backdrop of lighter positioning, if the market rallies, fund managers may be forced to chase gains. Surprisingly, a sharp increase in volatility may no longer be a red flag but instead could be a buy signal. It is unexpected that a significant surge in volatility might no longer pose a problem. "An uptrend accompanied by rising volatility"this phrase has permeated market commentary this year, suggesting that typically soothing upward movements have instead led to greater volatility, rather than less. Data supports the deeper logic behind this phenomenon: volatility is no longer a warning signal but has begun to play the role of a buy signal. The specific testing method involves selecting about 150 stock indicators encompassing benchmark indices, U.S. and European sectors, and thematic sectors ranging from AI to defense, to observe market conditions when a particular indicator's monthly actual volatility suddenly surges above 1.5 times its one-year average. Surge in volatility is positively correlated with strong performance. The results for 2026 show excellent performance. On average, the indicators that triggered this signal outperformed their peers by more than 5 percentage points in the following three months, with about two-thirds of cases recording positive returns. This marks the best year observed in the past decade based on retrospective data. The sectors that triggered this signal also correspond to this year's main themes. After surging volatility, sectors like storage chips, optical communications, AI agents, and data centers achieved excess gains ranging from 30% to 80%, followed closely by semiconductor and Bitcoin-related stocks. Conversely, utilities, energy, real estate, and value stocks also experienced rising volatility, but lacking funding support, ultimately failed to realize excess returns. This could imply that rising volatility becomes a favorable factor only when funds are already inclined to flow into these areas. It is worth noting that about half of the volatility events this year concentrated around the sell-off in late March and the subsequent recovery phase. In other words, a significant portion of the excess returns actually reflects "who rebounded the hardest from that major drop." Volatility surges triggered by price declines have resulted in returns that are even slightly better than cases triggered by price increases. This pattern resembles both bottom-fishing in high beta stocks and a genuine reflection of "volatility attracting capital." However, the same tests also remind us that this pattern is conditional and not structural. In 2021, an identical signal produced a sell indicationhigh volatility assets subsequently underperformed by 5 percentage points, with a win rate of less than 30%, and a bear market emerged a year later. Volatility can be a bullish signal but can suddenly transform into a bearish one. Nevertheless, in the context of generally low positions among "fast money," the likelihood of bottom-fishing remains higher. Technical Aspect: The S&P 500 Trend is Tilted Upwards, but Momentum is Weakening In the short term, the technical outlook remains positive. Bank of America technical analyst Paul Ciana indicated that the S&P 500 index continues to validate the upward breakout from August. However, momentum is weakening, with both the RSI and MACD indicators failing to confirm the validity of recent highs. Seasonal headwinds, uncertainty surrounding the U.S. elections, and rising yields all suggest that the rebound is entering a more challenging phase, with volatility potentially intensifying from September to October, before a new upward cycle may emerge in November to December. The technical signals of the S&P 500 are releasing positive indications. Ciana stated, "As long as the S&P 500 index holds above 7500 points, the price trend remains intact; however, rising yields increase the risk of a consolidation rather than an accelerated rally." He believes the target levels are 8000 points, 8234 points, and may even reach 8541 points. "As long as the support level of 7500-7504 points remains effective, the trend still leans towards the upside."