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Oil fell sharply on headlines suggesting another potential deal may be in the works. The reports sounded very similar to previous negotiations, but regardless of whether the news ultimately proves true or false, perception often becomes reality in markets. The headlines sent oil prices plunging and helped push risk assets higher.
More interesting, however, is that the Technology sector has been the only major sector to outperform the S&P 500 over the past 30 days, and by a wide margin — nearly 12.5 percentage points. Every other major sector has lagged the broader market’s returns.
The largest holdings in the XLK remain Nvidia, Microsoft, Apple, Broadcom, Micron, and AMD. That creates an increasingly narrow market leadership structure. Either the rest of the market will need to rally significantly over the coming weeks to broaden participation, or there is a reasonable chance the large-cap technology names will begin to correct lower.
The realized dispersion measure I track is currently estimated at roughly the 0th percentile over the past five years, suggesting this level of narrow leadership and low dispersion is unlikely to persist indefinitely.
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Meanwhile, rates fell sharply, helped by declining oil prices and a quarterly refunding announcement that ultimately proved to be a non-event, with any meaningful increases in coupon issuance still some time away. At least for now, the breakout in the 10-year yield above its multi-year downtrend line has failed, with yields falling back below that level today.
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AMD cleared the call wall area of resistance, helping propel the shares higher. Again, the options market can provide insight into, and a better understanding of, the key levels needed for a stock to rise or fall following earnings results. AMD’s results and commentary were clearly good enough, at least for today, to push the stock higher.
Meanwhile, ARM reported results that did not appear nearly as strong as AMD’s, yet the stock is still trading higher. That’s particularly interesting because I thought Palantir delivered better results on both the earnings beat and guidance, yet the stock sold off sharply.
The broader point is that Meta, Microsoft, Amazon, and Palantir all declined after earnings, largely as the options market had suggested, while Lilly rose, also as anticipated. So far, AMD has been the notable exception, and we likely will not know how ARM ultimately trades until tomorrow.
This is why understanding how options are positioned heading into any major event is so important.
Anyway, who knows what tomorrow’s headlines will bring.
-Mike
Glossary by ChatGPT
- Call Wall: A price level with significant call option open interest that can act as resistance for a stock.
- Coupon Issuance: The process by which the U.S. Treasury issues interest-bearing debt securities to investors.
- Dispersion: A measure of how differently stocks within an index are performing relative to one another.
- Downtrend Line: A technical analysis line connecting lower highs that indicates a declining trend.
- Earnings Beat: When a company reports earnings above analyst expectations.
- Options Positioning: The distribution of options contracts that can influence price movement and volatility.
- Quarterly Refunding Announcement: A scheduled U.S. Treasury update outlining upcoming government debt issuance plans.
- Realized Dispersion Measure: A statistical measure tracking the actual variation in returns among stocks over a given period.
- Risk Assets: Investments such as equities or commodities that typically perform better during periods of economic optimism.
- Sector Leadership: The market segments driving the majority of index performance.
- XLK: The Technology Select Sector SPDR Fund, an ETF tracking large-cap U.S. technology stocks.
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.
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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