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Well, stocks were unpinned on Monday; there is no argument there. How much of this really had to do with tariffs and whatnot is another question. From listening to Trump speak multiple times today, I didn’t get the sense that he was suddenly taking a lighter stance on tariffs, and I can’t wait until April 2 comes.
I think today had much more to do with the release of the market from the options expiration date and the pinning effect placed all last week. Additionally, the negative gamma environment and a big Tesla rally helped to push prices higher. At least, that is what it looked like.
Tomorrow is likely not to be a negative gamma day because, from what I could tell, today’s zero gamma level was around 5,700. Additionally, the S&P 500 closed the drop gap opening on March 10. The equal weight S&P 500, RSP, was up slightly more than 1%. So, there are plenty of reasons to see more muted and subdued price action.
Today, volume on the S&P 500 futures also fell to around 1.33 million contracts, the lightest trading session since February 19.
The S&P Global PMI data for the US was interesting and worth the five-minute read. Inflation is back; that is clear. The report notes that inflation rose at the sharpest rate across goods and services in 23 months. Inflation swaps took note, with the 1- and 2-year inflation swaps both rising pretty sharply and now once again on the verge of breaking out. They both have some nice-looking bull flags forming in them.
Imagine what happens when oil, which doesn’t seem to want to go down, actually starts rising. Inflation expectations could really start moving to the upside.
Or even lumber. Lumber just made a new cycle closing high.
The 10-year rose by nine bps today, following that inflationary PMI data. It closed above its 10-day exponential moving average. I guess we will see how Team Trump feels about the rise in the 10-year. I wouldn’t say the 10-year has broken out yet, but it’s close.
From a fundamental standpoint, one would think that if oil is going higher and inflation swaps are going higher, 10-year rates are going higher. On the other hand, we know that Trump wants rates lower. The question is who is going to win. I honestly do not know.
I think that is good for now.
Mike
Terms By ChatGPT:
1.Unpinned / Pinning effect – Refers to how stock prices often stay near certain strike prices due to options market dynamics (often near expiration). “Unpinned” means prices broke free from that constraint.
2.Options expiration date – The date on which options contracts expire, often causing increased volatility or specific price movements in the underlying stocks.
3.Negative gamma environment – A market condition where market makers must hedge their positions in a way that amplifies price moves. It can increase volatility as they sell into falling markets and buy into rising ones.
4.Zero gamma level – The index price at which the overall gamma exposure of options dealers is neutral (neither positive nor negative), often influencing how they hedge positions.
5.Drop gap – Refers to a gap down in price on a chart that has not yet been “filled” by a move back up to that previous price level. “Closing the gap” means price has returned to fill that level.
6.Equal weight S&P 500 (RSP) – An ETF where each S&P 500 component has equal weight, rather than being weighted by market cap. It reflects broader market performance without the influence of mega-caps.
7.Inflation swaps – Derivatives that allow investors to hedge or speculate on inflation. The referenced “1- and 2-year inflation swaps” track short-term inflation expectations.
8.Bull flag – A bullish chart pattern indicating potential continuation of an upward price move after a short period of consolidation.
9.10-year (bps / EMA) – The “10-year” refers to the 10-year U.S. Treasury yield. “bps” means basis points (1 bp = 0.01%). “10-day EMA” is a technical indicator that smooths price data over 10 days.
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