Goldman Sachs' panic gauge has reached a historically extreme range, and historical data suggest this often points to a medium-term rebound opportunity, though traders caution that the market is still in the process of finding a bottom.

On Saturday, traders at Goldman Sachs Group said the sharp sell-off in US equities has pushed market panic to an extreme level. The bank's volatility panic index surged to 9.57 out of 10 on Thursday, breaking through the 9.5 "panic zone" threshold, with the single-day gain being the third largest on record. Combined with Wednesday's sharp decline, the two-day cumulative swing set an all-time record.

Two-day swing sets a record, panic rapidly intensifies

Goldman Sachs trader Lee Coppersmith said the two-day cumulative swing was the largest on record, "fully illustrating how quickly the market shifted from relief to outright panic."

According to Goldman Sachs traders, the sharp reversal stemmed from massive demand for downside protection before Tuesday's US midterm elections. Investors had previously sold off hedge positions during the post-election rally, leaving portfolios severely underprotected when stocks turned lower. As share prices fell and forced hedge fund liquidations spread, investors rushed to buy back the protective positions they had just sold, further amplifying market volatility.

Options market panic signal: put option volume hits record high

The concentrated burst of hedging demand left a clear mark on the options market. On Thursday, Cboe put option volume exceeded 11 million contracts, setting a single-day record and surpassing the previous peak in April 2025. Index puts accounted for the bulk of the volume, while single-stock put volume also ranked as the fourth highest on record, highlighting the intense concentration of demand for broad protection.

Coppersmith noted that "yesterday's move was less about deteriorating fundamentals and more about an extremely poor technical backdrop and forced re-hedging pressure."

Historical patterns point to medium-term opportunity, but short-term caution remains

Although historical data present a relatively optimistic medium-term signal, Goldman Sachs traders still advised investors to remain cautious. They noted that as the market continues to search for a bottom, more positioning still needs to be absorbed.

"As forced selling gradually subsides, the market's allocation appeal begins to rise," Coppersmith wrote. "This doesn't necessarily mean rushing back into risk assets, but the potential opportunity on the other side is becoming increasingly hard to ignore."

Goldman Sachs' analysis indicates that extreme volatility and forced selling may ultimately create entry opportunities for investors willing to look past short-term turbulence, provided the market completes its current deleveraging process.