Why the March 2026 Sell-Off in SPY Was No Surprise — And What the Monthly Chart Is Really Telling You

The 13F filing season is always revealing, but this quarter has been particularly interesting. While we are still waiting for Leopold Aschenbrenner’s Situational Awareness LP to publish its latest holdings, several major hedge funds have already reported. And the message is clear: many of the big players have either closed out or significantly reduced their exposure to the Mag 7.

That single fact helps explain a lot about the sharp sell-off we saw in March 2026 — and why the subsequent bounce in April, while technically successful, arrived on remarkably poor volume.

Let’s look at the SPY monthly chart (attached) through the lens of Volume Price Analysis. It tells a story that is classic merchant-market behaviour: the inside players (large hedge funds and market makers) quietly reduce risk, while the outside crowd is left to pick up the baton and drive the next leg higher.

The March Lower Wick — Absorption, Not Capitulation

March 2026 produced one of the most visually striking monthly candles of the entire uptrend: a strong lower wick that tested the previous congestion zone from late 2025, followed by a recovery that left the candle closing well off the lows.

From a pure VPA perspective, that lower wick on elevated volume is classic absorption — sellers were met with buying interest, and price refused to break lower in any meaningful way. The effort (selling volume) was not rewarded with a sustained breakdown. That is exactly the kind of signal we look for when smart money is defending a level rather than distributing.

Yet the bounce that followed in April was anything but convincing. Price recovered, but the volume behind the move was noticeably lighter than we would expect for a genuine continuation of the primary trend. This is the first red flag.

April’s Poor-Volume Bounce — A Classic Warning Sign

In VPA terms, when price moves higher on declining or below-average volume, the move lacks conviction. It suggests that the rally is being driven more by short covering and options-related flows than by fresh institutional demand. The April candle is a textbook example of effort vs result disharmony — decent price progress on relatively weak volume.

This pattern is not random. It aligns perfectly with the 13F data now emerging: several large hedge funds had already begun trimming their Mag 7 holdings as of the end of March. When the biggest, most influential names in the market quietly reduce exposure to the very stocks that have driven nearly all the gains since 2024, the indices can still grind higher — but the character of the move changes.

The baton is passed from the “inside” players (who built the position earlier) to the broader market and, increasingly, to options-driven flows.

The Current Rally — More Gamma Squeeze Than Organic Demand

What we are seeing now in May feels less like a healthy, broad-based advance and more like a massive gamma squeeze fuelled by the options market.

Dealer positioning, call walls, and the explosive growth in ODTE (0DTE) options have created a self-reinforcing feedback loop. As SPY grinds higher, dealers who are short gamma are forced to buy futures or underlying shares to stay delta-neutral. This buying pressure pushes price even higher, which in turn forces more hedging — exactly the dynamic we have witnessed since the March low.

From a VPA standpoint, the current monthly candles show strong closes, but once again, the volume profile is not screaming “fresh accumulation.” It is more consistent with dealer hedging flows and retail FOMO than with broad institutional re-loading.

This is precisely why the market feels increasingly uncomfortable for longer-term investors, even as it remains highly tradable for shorter-term participants.

Traders vs Investors — Two Very Different Experiences

For traders who use multi-timeframe VPA and understand options flow, this environment is rich with opportunity. The repeated tests of key levels, the absorption wicks, the gamma-driven squeezes, and the sector rotation all create clear, high-probability setups on the daily and weekly charts.

For longer-term investors, however, the picture is far less comfortable. The heavy concentration in a handful of names (even as some hedge funds rotate away) means the index is vulnerable to any shift in sentiment around the Mag 7. The low-volume nature of the April bounce and the current reliance on options-driven momentum both suggest that the rally is more fragile than it appears.

In merchant terms, the big players have taken some chips off the table. The crowd is now providing the liquidity and the buying pressure. History shows that when that dynamic reverses, the correction can be swift.

What We Are Watching Next

We continue to wait for Situational Awareness LP’s 13F. Given Aschenbrenner’s well-publicised thesis on energy infrastructure as the true bottleneck for AI scaling, any fresh positioning in power, fuel cells (Bloom Energy), or related names will be closely scrutinised.

In the meantime, the SPY monthly chart remains our primary reference. The lower wick in March provided the support, the poor-volume April candle warned of reduced conviction, and the current price action is being driven more by gamma than by fundamentals.

This is a market that rewards those who can read the real supply-and-demand dynamics on the chart and in the options market. It is less forgiving for those who simply buy and hold, expecting the 2024–2025 playbook to repeat indefinitely.

The intelligence explosion may well continue, but the path higher is likely to be choppier, more rotational, and far more dependent on dealer flows than many investors realise.

We will keep updating as more 13Fs come in and as the SPY monthly picture evolves. In the meantime, stay focused on the volume, the anomalies, and the real intent behind the price action.

The market is always trying to tell us something. Right now, it is speaking loud and clear — if you know how to listen.

By Anna Coulling – creator of volume price analysis

By Anna Coulling – creator of volume price analysis