(Bloomberg) – The end of September in the stock market was a time of volatility, accelerated hedging and economic malaise. That hasn’t spurred an extreme reorganization in trader sentiment, however, and for some of Wall Street’s old guard it’s worrying.

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While the S&P 500 posted its worst monthly performance since March 2020, there was no sign of the kind of cathartic surrender that nonconformists seek by trying to call the dips. In the midst of another liquidation earlier this week, the hedge funds tracked by Goldman Sachs Group Inc. were just “modest” sellers. When the benchmark index suffered its biggest drop in four months on Tuesday, outflows from exchange-traded funds were only a fraction of what had been seen the week before.

At the same time, the buying frenzy that marked the exits from past lows were not evident either. Retail traders retreated from their preferred speculative instrument. The S&P 500 approached 4,385 twice on Thursday before falling. The failure came a day after the level – which served as a cap in July, then served as support in August – thwarted all four attempts to break the index.

“Until we see an impulse wash or buy, a move to DMA 200 on the S&P 500 cannot be ruled out,” said John Kolovos, chief technical strategist at Macro Risk Advisors. The index’s 200-day moving average was nearly 4,135, a decrease of 4% from its last close.

Stocks fell as surging bond yields prompted investors to shy away from high-value tech stocks. Added to the list of concerns are concerns about the public debt ceiling, rising political static around the Federal Reserve, and supply chain disruptions.

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But the panic was absent on the worst day of the carnage. When the S&P 500 fell 2% on Tuesday, hedge fund short sales were flat, as opposed to September 20, when a smaller drop triggered a 5.5% jump in bearish positions, data shows clients compiled by Goldman. And outflows of exchange-traded funds that day reached $ 1.7 billion, behind withdrawals of $ 12 billion seen since September 20, according to Bloomberg data.

According to Nomura Securities strategist Charlie McElligott, behind Tuesday’s liquidation, systematic traders are allocating assets based on volatility. He estimated that volatility control funds and targeted risk strategies likely reduced equity holdings by $ 35 billion that day alone.

Generally speaking, fear has not yet reached levels that signal a buying opportunity. Nicholas Colas, co-founder of DataTrek Research, says one indicator he monitors is the Cboe Volatility Index, or VIX. The gauge peaked at 25.7 this month, below the reading of 36 which generally signals what it calls a “negotiable low”.

“We are waiting for better levels before we turn tactically bullish again,” said Colas. “We recommend that long-term investors prepare for the next few difficult weeks.”

Regular dip buyers weren’t enthusiastic either. Retail investors, one of the bull market’s biggest allies, have limited their purchases of bullish options while increasing bets against stocks.

In fact, a trader just set up a massive hedging position via options to protect a portfolio of stocks in case the S&P 500 losses snowball towards 20% in the fourth quarter.

For Matt Maley, chief market strategist for Miller Tabak + Co., the market should follow the pattern of a year ago, when the surge in Treasury yields sent the S&P 500 towards a 10% correction. And with the Fed becoming more hawkish on monetary policy, investors had better prepare for greater turmoil, he said.

“We think the correction will likely be deeper,” Maley said. “This year, the Fed is about to cut back on its massive quantitative easing program and start talking about a rate hike sooner than the market expected. Around the same time last year, the quantitative easing program was running at full speed. “

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