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1 Takeaway
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Watch for confirmation of a trend change in the implied correlation versus dispersion spread, which may signal a directional turn for the S&P 500.
The S&P 500 advanced about 60 basis points on the day, but the index has essentially moved sideways since Friday. If it manages to gap higher tomorrow, that would be different, but for now, we’ve just been oscillating around the 6,750 gamma level. Technically, there’s not much to note, except for the bearish divergence on the RSI and the potential rising wedge.
I know everyone likes to compare today’s market to 1999, and there are even plenty of analogs circulating. However, I believe today’s market most closely resembles the one from the 1960s. In fact, it’s an analog I identified back in 2021, and it still seems to be tracking fairly well, even if the timing fluctuates a bit.
In the meantime, with the index rising by nearly 60 bps today, the 21-day moving average moved up to 6 basis points from 5.55 on Monday’s low. At this point, as long as the S&P 500 continues to rise or fall by more than 38 bps per day, the 21-day realized volatility will keep increasing.
The dispersion index continues to climb to historically high levels.
What was noticeable, however, was that the spread between the 3-month implied correlation index and dispersion index did not make a higher high. While one day doesn’t mean much, a few days of this potential change in trend in the spread could tell us a lot about where the S&P 500 is heading.
In the meantime, we can add Bank of America to the list of stocks that have turned lower in recent days.
Blackstone broke support today at 163.
Home Depot continues to fall as well.
However, overall market breadth continues to deteriorate.
The dollar continues to show strength, with the index pushing higher and breaking above resistance at 98.50. Momentum is continuing to build positively, with the RSI moving above 61. The 100 level is likely the next stop for the dollar index.
I’m sure I’m leaving something out, but my brain is hurting.
-Mike
Glossary by ChatGPT
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Basis Points (bps): A unit of measurement equal to one-hundredth of a percentage point, used to describe changes in interest rates or financial percentages.
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Bearish Divergence: A technical pattern where prices rise to new highs while a momentum indicator, such as RSI, fails to confirm, signaling potential weakness.
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Dispersion Index: A measure of how much individual stock returns within an index vary from each other, indicating the degree of cross-stock volatility.
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Gamma Level: An options-related threshold where dealer hedging activity can influence market movements around a specific price point.
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Implied Correlation Index: A metric derived from options prices that measures expected correlation between the stocks in an index.
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Realized Volatility: The actual historical volatility of an asset, calculated from past price movements.
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RSI (Relative Strength Index): A momentum oscillator used in technical analysis to measure the speed and change of price movements.
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Rising Wedge: A bearish technical pattern characterized by converging trendlines that slope upward, often signaling a potential reversal.
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.
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