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The S&P 500 finished the day up about 40 basis points. It had been higher earlier but gave back much of those gains in the final 45 minutes of trading. On the surface, today’s move higher appears to have been mostly options-related. The VIX fell sharply intraday, and it was clear that as implied volatility dropped, the market rallied. Then, as implied volatility rose into the close, the S&P 500 pulled back. It’s likely we saw another one of those typical volatility crushes that have occurred frequently since early October. These usually take place on Mondays, but given the large sell-off on November 4, that was probably the main driver of today’s trading action.
Perhaps more importantly, rates on the long end of the curve rose substantially today, with the 30-year yield climbing about 8 basis points to close at 4.74%. It appears the 30-year has broken out of a falling wedge, while the RSI has also broken out of its downtrend. Technically, this suggests the 30-year yield could move significantly higher—potentially back toward 5% in the not-too-distant future. That may come as a surprise to many, but that’s what the chart is indicating.
When you factor in the stronger-than-expected ADP report, the stronger ISM reading, and early signals from the quarterly refunding announcement suggesting the Treasury may increase coupon sizes in the coming quarters, there’s solid justification for long-end rates to rise. Additionally, based on what I heard during part of the Supreme Court hearing on tariffs today, the outcome didn’t sound favorable for President Trump. Such a result would represent a major loss of potential revenue and could require the government to increase borrowing to maintain its budget.
Overnight funding pressures have eased for now, though that could change in the coming days. The overnight repo rate fell to around 3.94%, marking the first time since the Fed cut rates that it has dropped below 4%. Tomorrow is a Treasury settlement day, which means liquidity will be drained from the system. In fact, roughly $23 billion in liquidity is expected to be pulled from the market.
Looking ahead, next week could see another $40 billion or so drained from the system, suggesting that overnight repo rates may begin to tighten again as we move toward the end of this week and into next. Based on the current schedule, next week is shaping up to be a fairly sizable settlement week, though we’ll have better clarity tomorrow.
Finally, we may soon find out whether the SoftBank (9984 JP) gamma squeeze is officially over. The stock was hit hard overnight, falling about 10% during the session. It had been down even more earlier, but what we’re still waiting to see is whether implied volatility levels begin to fall meaningfully. They did decline slightly overnight, but not enough to confirm anything yet.
We’ll have a clearer picture if the stock continues to drop while implied volatility also falls, which would signal that the gamma squeeze is unwinding. That would likely be a negative development not only for Japan but also for the broader AI trade, as it increasingly appears that this dynamic has been one of the main forces driving global markets lately in my view.
-Mike
Glossary by ChatGPT
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ADP Report – A monthly employment report by Automatic Data Processing that provides an estimate of private-sector job growth ahead of the official government data.
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Basis Point (bps) – A unit equal to one-hundredth of a percentage point (0.01%), used to measure changes in interest rates or yields.
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Coupon Size – The amount of interest the Treasury pays to bondholders, often adjusted when issuing new debt.
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Falling Wedge – A technical chart pattern that typically signals a potential reversal or breakout when prices move higher after a narrowing decline.
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Gamma Squeeze – A rapid price increase driven by options dealers hedging their positions as stock prices rise, amplifying upward momentum.
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Implied Volatility (IV) – A metric derived from options prices indicating the market’s expectations for future price fluctuations.
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Overnight Repo Rate – The interest rate charged for overnight borrowing using securities as collateral in the repurchase agreement market.
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RSI (Relative Strength Index) – A momentum indicator used in technical analysis to measure the speed and change of price movements.
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Settlement Day – The date when securities transactions are finalized and payment is made.
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Volatility Crush – A sharp decline in implied volatility, often following an event or options expiration, that can cause price shifts in related assets.
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.
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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