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It is hard to believe that the S&P 500 is only 2–3% below its all-time high, given the carnage across various parts of the market. Today alone, silver and Bitcoin plunged by roughly 20% and 13%, respectively. For now, the S&P 500 is holding near the 6,800 level, supported by gamma positioning, although that support can change on a daily basis. If 6,800 breaks, the next area of support would likely be between 6,700 and 6,720.
Given some of the post-earnings price action this evening, there is a good chance the index gaps lower in the morning.
At the moment, the VIX is not trading above the 3-month VIX index, meaning the market has not yet flipped into backwardation. That suggests implied volatility is rising across the curve, but we have not seen a true crescendo of fear.
Additionally, the dispersion index minus the 3-month implied correlation index remains at the upper end of its range, suggesting that the unwind has not yet begun.
At this point, the only thing that appears to be holding the market together is NVIDIA, which has managed to stay above $170 since July. That level is a critical area of support, and a strong case can be made that it represents the neckline of a head and shoulders pattern. A break below $170 would likely not only signal further downside for NVIDIA, but could also trigger a broader breakdown in the major indexes.
If you think about the market through a second-order lens, the current narrative is that AI is going to break the SaaS business model. The logical third-order question then becomes: if the SaaS model breaks, who buys AI models from the hyperscalers? And if the hyperscalers can no longer generate sufficient returns, who ultimately needs to keep buying GPUs from NVIDIA?
Ironically—or perhaps not—the software sector actually peaked ahead of NVIDIA. Now that software stocks are rolling over, the question is whether NVIDIA follows the same path.
-Mike
Glossary by ChatGPT
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Backwardation – A condition where near-term implied volatility trades above longer-dated volatility, often signaling elevated market stress.
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Dispersion Index – A measure of how much individual stock volatility exceeds index volatility, reflecting stock-specific risk.
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Gamma Positioning – The impact of options dealers’ hedging activity on market price stability around key levels.
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Head and Shoulders Pattern – A technical chart formation that often signals a potential trend reversal from bullish to bearish.
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Hyperscalers – Large cloud service providers that operate massive, scalable data center infrastructures.
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Implied Correlation Index – A metric estimating the average correlation between stocks implied by options prices.
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Implied Volatility – The market’s expectation of future price fluctuations derived from options pricing.
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SaaS (Software as a Service) – A software distribution model where applications are delivered via subscription over the internet.
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VIX – A volatility index measuring the market’s expectation of near-term S&P 500 price fluctuations.
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.
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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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