Subscribe to receive this FREE daily commentary directly in your email
I will be presenting at the MoneyShow virtual expo on November 12; you can watch me here, for FREE
Not a great day for stocks, with the S&P dropping by about 85 basis points. Tomorrow will not be a Treasury settlement date. Additionally, this is typically the time of month when we see government-sponsored entities enter the overnight funding market, helping push overnight funding rates lower as excess cash comes in. So tomorrow could be one of those days when, if you’re expecting the market to rise, you might see a pretty decent bounce.
But the problem is that Thursday is a settlement date, which means the market could be vulnerable again to another pullback if more liquidity is drained. And then, of course, next week we head into month-end, which typically tightens liquidity conditions. So while it’s possible we get a rally tomorrow, we also have NVIDIA reporting after the close, and I would expect implied volatility to ramp up ahead of those results. It’s a tough setup, and my crystal ball doesn’t have that type of precision.
Then the jobs report on Thursday morning will make things even more interesting. So over the next 24 to 36 hours, there’s a lot happening, and you can make a case for a sizeable move in either direction—although I would think there would be more liquidity tomorrow given the overnight funding picture.
The options positioning heading into NVIDIA’s results is razor-thin, with the stock down almost 4.5% this week. The setup has shifted slightly, with the stock moving closer to the zero-gamma level around $180. At the moment, there is still more positive gamma, which means we’re in a regime where market makers would likely be buyers of dips and sellers of rips. But below $180, that would shift, and market makers would become directional with the stock.
Based on the gamma levels, the next major support sits near $170, followed by a drop below $160. On the upside, $200 appears to be a ceiling, and even getting through $190 would likely prove difficult.
Still, there are many calls that are due to lose out if this stock doesn’t see a push above $190 post-earnings.
The CDX high-yield credit spread index continued to widen today, reaching its widest level since mid-June. If the index breaks above 350, it could move up toward 365 and potentially even 385. That would put us in a much tighter financial conditions environment, which would obviously not be good for risk assets.
In terms of where the overall AI trade is going, we may have to look overseas to South Korea, because one of the clear leaders has been SK Hynix, 660KS, which is currently sitting on a pretty important support level around 551,000. If that level breaks, the stock could easily fall 15 to 16 percent, down toward roughly 465,000.
That may sound like a large move, but keep in mind the stock has rallied about 115 percent just since the beginning of September. It has made a massive run in a very short period of time, and a decline of that magnitude would be significant for the broader AI trade.
Finally, we’ve seen 10-year rates in Japan move higher again, trading up to 1.76% as I write this. This continues to revolve around Japan’s plans to stimulate the economy through more spending and increased debt issuance, while the BOJ still hasn’t done anything meaningful with interest rates. At this point, the Japanese 10-year looks like it could be heading toward 1.9%, and it also appears to be breaking out to the upside of a rising wedge. That’s not something you see very often, but when it does happen, it can lead to big moves in a short period of time, at least in my experience.
-Mike
Glossary by ChatGPT
Basis Points (bps) – A unit equal to 1/100th of a percentage point, commonly used to measure market rate changes.
BOJ (Bank of Japan) – Japan’s central bank responsible for monetary policy and interest-rate decisions.
CDX High-Yield Credit Spread Index – A benchmark tracking credit risk premiums on a basket of high-yield corporate bonds.
Gamma – A measure of how quickly an option’s delta changes, influencing how market makers hedge positions.
Liquidity Conditions – The ease with which assets can be traded without significantly affecting prices.
Overnight Funding Market – A short-term lending market where financial institutions borrow and lend cash overnight.
Settlement Date – The date when a securities or cash transfer is finalized in financial markets.
Zero-Gamma Level – A price point where total gamma exposure is neutral, often indicating a shift in market-maker hedging behavior.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Market Volatility Driven by OpEx Flows and NVIDIA Positioning
Mott Capital's Market Chronicles 11 hours ago