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It was another low-volatility, low-volume trading session for S&P 500 futures, with the cash market rising by about 40 bps on the day. As noted yesterday, the 40 bps gain resulted in 10-day realized volatility finishing at 6.85, slightly down from 6.86 yesterday. Essentially, realized volatility has nowhere to go from here unless we start consistently trading under 20 bps per day. Given how illiquid this market is and the persistent headline risk, sustained periods of such low daily moves seem unlikely.
The market obviously recognizes this, which explains why both the VIX and VVIX traded higher today.
That’s not all—both the 1-month and 3-month implied correlations also rose today.
Both IG and HY CDX index spreads widened today as well.
It’s uncommon to see higher implied correlations, rising implied volatility, wider credit spreads, and higher stock prices simultaneously. Generally, stocks trade lower when the other factors rise. This unusual combination suggests the stock market has virtually nowhere left to go from here. Technically, this indecision is clearly visible on the chart, with today’s candle positioned precisely between the upper and lower boundaries of the rising wedge pattern.
You could obviously see more grinding price action tomorrow, especially since it’s Friday, but it feels like the days are numbered at this point.
See you on Sunday.
Mike
TERMS BY CHATGPT
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Implied Correlation: A market-derived measure of how closely stocks are expected to move together, typically extracted from options pricing.
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Implied Volatility (IV): A measure of expected volatility derived from option prices, reflecting the market’s anticipation of future price fluctuations.
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IG CDX Index: Investment Grade Credit Default Swap (CDS) Index, tracking the credit risk of high-quality corporate debt.
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HY CDX Index: High Yield Credit Default Swap Index, tracking the credit risk of lower-quality (high-risk) corporate debt.
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Wider Spreads: Refers to an increase in the difference (spread) between yields on corporate bonds and risk-free rates, indicating rising credit risk or investor uncertainty.
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Realized Volatility: Historical measure of the actual price movements observed over a specific period, usually calculated using standard deviation of returns.
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bps (basis points): Units representing one-hundredth of a percent (0.01%). Commonly used to describe changes in interest rates, yields, or market returns.
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Rising Wedge: A bearish chart pattern characterized by converging trendlines that slope upward, typically signaling potential price reversals after a prolonged rise.
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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