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Stocks Are Weaker Than They Appear Ahead Of November OPEX

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#Stocks – FCX

#Macro – $SPX, $NDX $OIL, $RTY

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Stocks finished the day flat, with the S&P 500 up just 12 bps, while the NASDAQ advanced ten bps. The day was not strong for the Russell 2000, down 1.5%; the S&P 500 equal weight, dropping 33 bps, and the NASDAQ 100 equal weight, down almost 50 bps. Tomorrow is November Opex.

The reason I bring this up is because today was the day we saw the unwind of that Nasdaq 14,600 11/17/23 call option, which traded nearly 7,000 contracts on the day. This was presumably bought to cover, to unwind that covered call position in the Global X NASDAQ 100 Covered Call ETF, which had a delta exposure of about $8 billion. Once the volume picked up in the option around 2 PM ET, the NASDAQ 100 started to trade higher.

Tomorrow, we should see a new covered call trade presumable for the December expiration date, which should create a similar amount for sale, which obviously could hurt the market in the afternoon, probably like what we saw on October 20, when the NDX reversed and fell by 1% starting after 1 PM. But we can see what happens.

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Anyway, the reason I pointed to the equal weight indexes is that I am guessing that because the NASDAQ options contract was being unwound, the buying pressure had to reflect somewhere, and given the top-heavy nature of the NASDAQ, it makes sense to see a stock like Nvidia not have as big of an impact in the equal weight index. It tells us that this was a pretty weak day despite the gains.

S&P 500 Wave Count Unchanged

The nice thing is that because today’s high didn’t eclipse yesterday’s high, my wave count for the S&P 500 didn’t change. A down day tomorrow would be nice because my wave count would still work, and maybe I can have a somewhat less busy weekend.

The Russell 2000’s Nasty Reversal

The other day, there was a lot of fuss about the Russell 2000 “surging” and “soaring” by 5.5%. Let’s put it this way: the Russell 2000 is down so much that a 5.5% rally hardly even registered on the chart. If it wasn’t written above that the Russell 2000 rose by 5.5% on November 14, would you have guessed that was how big the move was? Anyway, more important is that the Russell 2000 surged right to the 200-day moving and crapped out. Maybe this is a typical 38.2% retracement, and the Russell soars tomorrow or next week. But I have to say that is one ugly chart, with that nasty reversal candle on Wednesday.

Oil Doesn’t Look Good

Oil continues to deteriorate, and when it falls like this, it doesn’t send a good message about global growth. What makes it worse is that oil is falling even with all the cuts to production. It almost looks like oil could undercut that $65 low. It is oversold here so it could be due to bounce. It depends on how you want to label this whole thing. However, we may be in wave C, which could take oil down to $47. But we must see what happens over the next week before jumping to conclusions.

Freeport Looks Weak

Finally, if global growth is slowing as oil suggested, that probably isn’t good for copper or the miners like Freeport. It could be why the stock broke an uptrend in what appears to be part of a diamond reversal pattern. It will be essential to watch how the stock behaves in the $33 to $35 region; a break of $33 is probably not good.


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.

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