Home » Nvidia Goes Supernova As Stocks Fall And Rates Rip

Nvidia Goes Supernova As Stocks Fall And Rates Rip

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2/5/24

#Stocks – $NVDA

#Macro – $SPX, $DXY, #RATES

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Stocks finished lower today, following a hotter-than-expected ISM services index and prices paid index. The jump in the prices paid index was the largest since 2012, surpassing all of the data from 2021 when inflation was really moving higher. This is a meaningful jump, and the report notes that 15 industries reported higher prices in January and only one experienced a decrease.

This gave rates a second leg higher on the day after Jay Powell confirmed on 60 Minutes of a low likelihood of a rate cut in March and it was more likely to come later in the year. It left the 10-year 14 bps higher on the day.

This resulted in the dollar strengthening today, with the most interesting sign of strength from the dollar being against the euro as it has now completely broken free from what appears to be a giant diamond reversal top and the potential to return to 1.05 to the dollar, or worse back below parity.

Overall, if we see rates rise and the dollar strengthens, it should lead to tightening of financial conditions, which translates to a higher vix and lower stock prices. The S&P 500 equal weight index was down by 86 bps today, while the S&P 500 market cap-weighted index was down just 32 bps.

The RSP ETF seems to tell a different tale than the SPX. The RSP clearly shows that ETF failed to get beyond $158.50 and shows the potential double top pattern in place. But for confirmation, we need to see the RSP drop below $153. If that were to happen, it would likely to lead a much larger decline, especially given the size of some of the gaps back down around the October lows.

It probably would have been worse for the S&P 500 today if not for the fact that NVIDIA was up again, rising 4.8% and closing completely outside of its upper Bollinger band with an RSI of 85. These two conditions, when combined, suggest the stock is currently overbought.

At least based on the implied volatility profile of today’s price action, with the 105% moneyness 1-month options IV pushing above that of the 95% moneyness puts, it would suggest that the stock is in the midst of a giant gamma squeeze higher.

The term structure of IV for the March OPEX probably tells you all you need to know about what is happening in the stock. There are lots of demand for calls, coupled with an extremely overbought stock price.

It is like a star that has gone supernova; at some point, the IV will get so high the stock will implode on itself.

Anyway, that’s all for today.

-Mike

Charts used with the permission of Bloomberg Finance L.P. 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.