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Stocks rose sharply today, following Trump’s announcement on Sunday to “pause” the 50% tariffs on the EU. However, the move went above and beyond that, and it likely had more to do with rates in Japan dropping overnight than anything else, as rates in the US also fell.
Japan’s Finance Ministry is set to meet with dealers on June 20, sparking speculation about potential cuts in ultra-long bond issuance. Of course, markets can fluctuate significantly between now and then, and it’ll be fascinating to see where JGB rates settle. Admittedly, I’m no expert on JGB issuance—or the political chess game behind it.
However, one can easily see on the chart that the 40-Year JGB rates reached overextended levels. It will be more interesting to see if they continue to decline tonight. I would think that if issuance shifts to the shorter end of the curve, the question is whether yields on 2- and 5-year rates rise. It will be interesting to see how they respond as well.
This sent the US 30-year rate lower today, and clearly, the impacts in Japan will weigh in. Additionally, we are approaching month-end, and with US bond yields rising significantly, some bonds may need to be purchased. I’d imagine that at 4.8% there is some good support, given it’s the 61.8% retracement level, and a long-time support/resistance zone.
The S&P 500 gapped higher this morning, and didn’t look back. It is tough to view today’s price action as anything other than a rebound attempt, or perhaps even some positioning ahead of a busy week that includes the FOMC minutes, Nvidia’s results, GDP revisions, and PCE data. To this point, we retraced 78.6% of the decline from May 19 to Friday morning’s low—pretty standard stuff at this point. Even if we move back to 5,960, it would not be surprising.
It certainly appears that a rising wedge pattern has formed in the index, and if that is the case, the index should rise significantly more than from 5,960 to 5,970.
Of course, Nvidia reports results tomorrow, and today implied volatility rose to over 95%, and it will likely be well over 100% by the time the company reports results tomorrow afternoon. The interesting thing is that the Call IV for this week is higher than the PUT IV across strike prices. So clearly, there is a lot of demand for calls.
Again, the $135 calls are trading for $4.95 per contract; therefore, the stock needs to trade above $140 for the calls to turn a profit, which also happens to be a significant wall of gamma, with more at $145.
The problem, as mentioned over the weekend, is that once the company reports, those calls will plunge in value, so unless the company surprises, meaning it beats by more than the usual $2 to $3 billion and raises guidance by more than the typical $2-3 billion, the stock is going to have a tough time going higher.
-Mike
Terms By Gemini
Implied Volatility (IV)- A metric that reflects the market’s forecast of a likely movement in a security’s price. It is a key input in options pricing models, indicating how much uncertainty or risk the market associates with future price changes. Higher IV usually means higher option premiums.
Wall of Gamma- An options market term referring to a specific strike price (or a narrow range of strike prices) where a very large amount of options gamma is concentrated. This can cause the underlying asset’s price to be “pinned” to that level, especially as options expiration nears, or it can lead to accelerated price moves if that level is breached.
VIX (Volatility Index)- Often referred to as the “fear index,” the VIX is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility of the S&P 500 index. It is derived from the price inputs of S&P 500 index options.
JGB- An acronym for Japanese Government Bond. These are bonds issued by the government of Japan.
Fibonacci Retracement Level (e.g., 61.8%)- In technical analysis, these are horizontal lines that indicate potential support and resistance levels where price could reverse or stall. They are based on Fibonacci ratios (e.g., 23.6%, 38.2%, 50%, 61.8%, 78.6%) applied to a prior price move (high to low or low to high).
FOMC Minutes- A detailed record of the meetings held by the Federal Open Market Committee (FOMC), which is the monetary policy-setting body of the Federal Reserve System (the U.S. central bank). The minutes are typically released three weeks after each meeting and provide insights into the committee’s economic outlook and policy discussions.
PCE Data (Personal Consumption Expenditures Price Index)- A measure of inflation in the United States, tracking the changes in prices of goods and services purchased by consumers. The Federal Reserve often emphasizes the PCE price index when assessing inflation and making monetary policy decisions.
Calls (Options)- Financial contracts that give the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset or instrument at a specified price (the strike price) within a specific time period (before or on the expiration date). Investors buy calls if they expect the price of the underlying asset to rise.
Strike Price- The set price at which a derivative contract, most commonly an option, can be bought or sold when it is exercised. For a call option, it’s the price at which the underlying asset can be bought; for a put option, it’s the price at which it can be sold.
Rising Wedge Pattern- A technical analysis chart pattern that is typically considered bearish. It is formed by two converging trendlines, both slanting upwards, with the lower trendline being steeper than the upper one. While the price makes higher highs and higher lows, the pattern suggests a potential for the price to break downward.
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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