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The market rallied on November 22 as volatility, and the dollar fell sharply. The VIX dropped to 21ish today and almost filled the gap created on August 19. Despite the bullish day, the one interesting thing is that options traders didn’t see it that way. The deltas on the SPY were massively negative today, suggesting that traders were buying puts and selling calls. That is not a bullish options activity; that is bearish options active.
It is also evident that with the VVIX trading slightly higher today and at the bottom of its range, and the VIX trading around 21, it is getting very cheap to start buying protection again. Additionally, the last few times, the VIX was in this low 20 range; it came right at the time of the Fed minutes.
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You have to ask yourself if the VIX will go sub-20 between now and year-end. That is also knowing that the Fed minutes come out tomorrow. Powell is talking on November 30, a CPI release the second week of December, and an FOMC meeting the next day. While also being fully aware that a falling VIX helps to ease financial conditions, which is precisely the opposite of what the Fed wants.
As for the S&P 500, I still think we have a downside risk here of around 3,750. I don’t see a case for markets to continue to rise. Which is also precisely the opposite of what the Fed keeps telling us they want. At this point, this seems like a common retracement to me.
Or the end of a potential extension. So if the market rally wants to end here, the Fibs certainly make a strong case for that.
Meanwhile, the dollar moved down today, giving back some of the gains from yesterday, which also helped to boost equity markets as financial conditions ease when the dollar falls. It almost looks as if we have formed a bull flag now in the dollar, indicating the dollar still has further to climb.
Anyway, that’s all I have for today.
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. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. 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.