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- RTM: CPI Hotter, Stocks Crushed
- RTM: CPI Report Could Lead To Drop In Stocks
- RTM: Fed Minutes Are Non-Event, Turning Attention To CPI
- RTM: CPI May Be Hotter Than Expected
- RTM: AMD’S Stock Faces Further Losses
- RTM: Replay Of Q&A Session 10.10.22
- RTM: Intel May Have Even Further Downside
- RTM- Next Live Q&A Zoom Session Oct 10th At 11 AM ET
Stocks had a hectic day, dropping lower, hitting the 3,500 area, and bouncing hard. It looked like a classic Vanna rally after a news event, not all that dissimilar to what we have seen following some Fed meetings. Going into today, Implied Volatility for the S&P 500 was over 50%. Once the market opened, IV started dropping as investors sold in-the-money puts, leading to market makers buying back hedges.
By the end of the Day, IV was back to 40%, and by tomorrow it is expected to be back to 27%. This is the same type of event that we typically see following a Fed meeting.
The rally today, was a mechanical bull ride in my opinion, and I would be surprised if lasts.
All you have to do to understand the impact of the CPI report again is look to bonds; there is nothing magical about it. Fed Funds futures are now pricing in rates to hit nearly 4.95% by April and are probably heading higher and past 5%.
Meanwhile, the 2-Yr rate jumped to more than 4.45%.
So I would be surprised if the equity market was cool with a Fed Funds terminal rate heading to 5% by the spring of next year. Nobody ever said the equity market was the sharpest tool in the shed.
The S&P 500 fell right into that 3500 to 3520 range I was looking for and bounced. That was the level with the most significant amount of put gamma, likely triggering a wave of put selling, given the IV melt in the above chart. The index reached 3,670, which had been a resistance level before today.
We could call this pattern a cup with a rising handle, a bearish reversal pattern. A cup and handle pattern is bullish when the handle is flat or falling, but when it is rising, it is bearish. Or you can say this is a rising flag and a bearish pattern. Both of these patterns suggest the market gives back the entire rally.
I hate to say it, but based on the 2008 analog, today’s rally came right on time. We will see; one way or another, we are getting closer to a short-term bottom.
Good luck tomorrow.
Charts used with the permission of Bloomberg Finance LP. 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 investments.