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Stocks had a relatively dull day, as noted by the S&P 500 equal-weight index, which traded flat. If not for Meta’s nearly 4% and Nvidia’s 2% dead-cat bounce, the market cap weight index managed to finish higher by around 40 basis points.
What was equally odd and disturbing today was that the 1-month implied correlation index was higher. It is not often that the implied correlation is higher, rates are higher, the dollar is lower, and the S&P 500 is higher. In fact, the implied correlation index has been higher for 4 days in a row now. Typically, when the 1-month implied correlation index rises, the S&P 500 falls. I found that to be odd.
The other notable development is that the dollar weakened today, with the USDJPY dropping to 142.60. Interestingly, the S&P 500 also diverged from the USDJPY today. For the most part, the USD/JPY and the S&P 500 have been trading with each other for some time.
So really it is more of a question whether today was the outlier for the S&P 500, and atleast based on the fact, that there was a significant divergence between the RSP and SPY today, you have to think that S&P 500 market cap weight index was the outlier, given the moves in Meta and Nvidia.
From a technical perspective, a reversal from here is becoming increasingly more challenging, as there is no more room to move. So, if there is going to be a turn-down, it needs to happen and needs to happen soon.
I would still contend that the move higher is just as challenged, just because the VIX has a lot of gamma built up at 18, and that is likely to support the VIX. If the VIX can’t move lower, it will be hard for the S&P 500 to rally.
At this point, we have to shrug our shoulders and see what happens. I’d be surprised, though, to see implied correlation continue to rise, implied volatility rise, the dollar sink, and the S&P 500 rally. So something will have to give.
-Mike
Terms By ChatGPT:
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Equal-Weight Index (RSP):
An index where each stock has an equal influence, unlike a market-cap-weighted index where larger companies have a greater impact.
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Dead-Cat Bounce:
A brief recovery in the price of a declining asset, usually followed by continued downward movement.
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Market-Cap-Weighted Index (SPY):
An index that weights stocks by market capitalization, meaning larger companies affect the index more significantly.
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Implied Correlation Index:
Measures the market expectation of correlation among stocks. A rising implied correlation typically indicates investors expect stocks to move in unison, usually associated with market stress.
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USD/JPY:
The exchange rate pairing between the U.S. Dollar (USD) and Japanese Yen (JPY), often monitored as a risk sentiment indicator.
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Gamma (in VIX context):
In options trading, gamma refers to the sensitivity of an option’s delta to changes in the underlying price. Here, it refers to hedging flows around specific VIX levels, impacting market volatility.
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RSP vs. SPY Divergence:
Indicates differing movements between the equal-weight S&P 500 (RSP) and the market-cap-weighted S&P 500 ETF (SPY), often highlighting underlying breadth in the market.
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Basis Points:
A unit equal to 0.01%, used to express small changes in financial rates or indexes clearly.
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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