11/9/23

#Stocks – $SMH

#Macro – $SPX, #Rates,

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

Some Recent Titles:

• RTM: Powell Follow Up
• RTM: 30-Year Auction Rapid Update (Audio)
• RTM: Stocks Stall As Gamma Squeeze Losses Juice
• RTM: Stocks Contained By Options, Despite A Solid 3-Year Auction
• RTM: Here We Go Again!
• RTM Unusual Options Activity: Zillow May Be Heading Higher
• RTM: MCM 3Q’23 Quarterly Letter
• RTM: Stagflation Appears To Be Here

Stocks fell today as the call wall at 4,400 continued to provide meaningful levels of resistance, which is kind of sort important. Becuase over the past few days, as the call wall has offered a very strong level of resistance, the zero gamma level, which is kind of like support, or maybe a floor, has been moving higher. Today, the S&P 500 flip level, according to Gammalabs, was at 4,360, and the index fell below that support level to close at 4,347. This means if everything remains overnight and levels don’t change in the morning, that tomorrow the S&P 500 will be back in negative gamma, and that could add a lot of volatility to the market.

What sparked the selling was what I have been talking about all week: the Treasury auction that came today at 1 PM ET. The 3-year and the 10-year auctions went well earlier in the week. The 30-year auction is another story and appeared to me at least to be even worse than last month’s disaster auction. The rate was trading when issued at 4.716%, and the high yield was priced at 4.769%, which is a massive tail. It was not good.

Then, to add to it, of course, was that Powell reiterated basically the same message as last week, but today, the mechanics of the market were positioned differently, and so the different outcome.

This could be nothing, or we could see the market bounce back tomorrow. But still, the call wall is likely to still be at 4,400, so even if it does bounce back tomorrow, where’s it going? Additionally, if it did flip back to negative gamma, volatility could rise and push prices down.

Also, now that the pattern appears to have been completed into a cup with a rising handle, my guess would be that we retrace the entire rally last week and work to fill the gap at 4,115. Becuase at this point, the pain trade to me doesn’t seem to be higher, but lower. Because the vast majority of investors are expecting and positioning for a year-end melt-up.

We also got a big bearish engulfing pattern today on the S&P 500 and the NASDAQ 100. These patterns don’t always work, but they certainly worked back on October 12 and July 27. It didn’t work so well on August 24.

The 10-year today survived a really big test; it was at a level that had to hold, and it did.

There appears to be a 2b Top that has formed in the SMH ETF. What makes this even more interesting is how it extends all the way back to mid-September, too. What’s ironic here is that this pattern, if correct, would suggest the SMH returns to its October lows. Why is this ironic? Because the pattern in the S&P 500, which appears to be entirely different, suggests the same outcome.

Have a good one!

-Mike

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