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8/21/24
#MACRO: $NDX, $SPX, $USDJPY, $US10Y
#STOCKS: $NVDA
- RTM: Market Reaches Major Inflection Point
- RTM: Conflict
- 5 Markets Gauges To Watch For Next Week
- Stocks Rally Ahead Of CPI
The S&P 500 closed up around 40 basis points. The stock market seemed unfazed by the fact that the VIX and 1-month implied correlation indexes were higher, the yield curve was steeper, and the dollar was weakening. But that’s what CTA flows can do, and those flows have been driving the market for the past couple of days.
The 1-month implied correlation index, the VIX, the VVIX, and the S&P 500 will not often rise on the same day. Yet, that’s precisely what has been happening over the past few days. The implied volatility metrics typically trade opposite to the cash market.
The BLS reported today that 818,000 fewer jobs were created through March 2024 over the past year than originally estimated. This news initially pushed yields lower to start the day. Then, the Fed minutes were released at 2 PM ET, revealing that it may be appropriate to cut rates in September. Unsurprisingly, this led to some steepening of the yield curve, but the steepening process is just beginning, and there’s likely much further to go.
Tomorrow is initial jobless claims day, which could either help or hinder the steepening process. The last two weeks have seen some strong reactions to the data. Predicting the outcome is impossible, but the trend for continuing claims has generally increased. Who knows, it might even be forming a cup and handle pattern.
Could this be why the implied correlation index, the VIX, and the VVIX were up today? Possibly, but with the VIX 1-day around 11.6, it doesn’t seem like a strong enough reason; the VIX 1Day is too low.
Meanwhile, the USDCAD is still searching for a bottom around the support level at 1.36. It appeared to find some stability around midday, but the pair surged sharply higher following the release of the Fed minutes.
It even formed a nice-looking double bottom at the lows today before returning to the support/resistance level. We know that the USDCAD has been one of the currencies that can help us identify tops and bottoms in the S&P 500. If the bottom was indeed set today, it could indicate that a top has been put in place for the S&P 500, we only know with hindsight.
Finally, the suspense builds for Nvidia, with earnings coming next week. We can already see that the big gamma level for expiration during the week of August 30 is at $130, the same as this week’s expiration. So, for now, that remains a key resistance level. Additionally, implied volatility (IV) for next week is already over 80%, and chances are it will climb even higher as earnings approach. This means call options will likely be inflated by IV heading into the event, suggesting that market makers might be over-hedged against the stock moving higher after the results.
Be careful out there!
-Mike
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.