4/17/24

#Stocks – $QYLD, $NVDA

#Macro – $SPX, $NDX,

Mike’s Reading The Markets Macro Subscription Service on Seeking Alpha

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• RTM: Stocks Rally As Implied Volatility Drops Following Jobs Report

Stocks finished the day lower despite an early morning rally attempt. The S&P 500 finished down by almost 60 bps to close at 5,022. The index is nearing that all-important 5,000 big gamma level heading into Friday’s OPEX. That level can offer support at least through Friday; a break of that level before Friday would change the dynamics of the market.

The thing is that there is quite a bit of put delta that has been built in the S&P 500 at 5,200 and 5,100, and presumably, the market makers sold those puts to customers who were the buyers of the puts, and that means for market makers to be hedged, the market makers are short S&P 500. So, as the index drops, market makers are sellers of the index. If the index drops below 5,000, then the selling pressure would increase because those 5,000 puts would go into the money.

(BLOOMBERG)

The other dynamic is that this month, when the QYLD ETF goes to cover its NASDAQ 100 calls for expiration on April 19 at the 17,900 strike price on April 18. The impacts from that buyback will be minimal, if at all, felt by the market. The notional delta value for those call options is now a mere $457 million, compared to what has been as big as a notional 5,6,7 or even $8 billion in the past. However, when the new call is sold on Friday, it will create a huge sell imbalance in the market.

(BLOOMBERG)

The NASDAQ has broken below the megaphone pattern, and today it filled the gap from February 21. A break of support at 17,400 would set up a further drop to around 17,100 for starters.

Today, we saw NVIDIA testing and nearly breaking support at $850. That is a significant level because if it goes, the entire market will follow.

Lets face facts, the S&P 500 is up 5.3% on the year, which is 252 points. Of those 252, Nvidia accounts for 101 points, or about 40% of the gains. If Nvidia fell 21% and filled the gap at $670, it would be up 35% on the year. But right now, it is up almost 70% on the year, so I’d guess that if Nvidia fell to $670 and was up only half as much, it would probably mean that Nvidia would account for 50 points in the S&P 500 and instead of the S&P 500 being up 252 points it might be up 202. Meanwhile, one would think that if Nvidia goes, the other Fab4 would likely go too, and the fact is that the Fab4 represents 80% of the gains so far this year in the S&P 500.

So if Nvidia goes, things would probably get ugly fast.

(BLOOMBERG)

-Mike