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#MACRO – $SPY, $QQQ, #RATES #DOLLAR #COPPER
- RTM: OPTIONS TAKE OVER
- RTM: Weaker CPI Probably Takes 75 Bps Hike Off Table In December
- RTM: The Market Doesn’t Seem Ready For A Hot CPI Report
- RTM: Thoughts On Investing In The 2022 Environment
- RTM: Rally May Be Near Exhaustion
- RTM: The S&P 500 (SPY) May Fall Sharply After The CPI Report
- RTM: Tesla’s Stock Is On The Brink Of Breaking Down
So CPI came in cooler than expected today, at 7.7% versus 7.9%. Certainly not what I expected, and that is how it sometimes goes. Unfortunately, I am a person like everyone else. I have been wrong plenty of times in the past. I have plenty of readers that remind me of that every day. The Cleveland Fed’s data has been consistent and far better than any source I have followed for some time, and to have bet against them would have been a mistake, in my opinion. All one can do is assess the market and use the information. Unfortunately, it is not the first time I have been wrong, and it will not be the last.
But, it is essential to remember this isn’t likely to change the path of monetary policy anytime soon. It was enough to spark a massive short-covering event, and it probably removes a 75 bps rate hike off the table for December, which was questionable at best to begin with. But remember, the more rates fall, the more the dollar weakens, the more stocks rise, the more financial conditions ease, the more the Fed needs to tighten, and the more Powell will fight back against the market. Remember Jackson Hole.
The S&P 500 managed to climb 5.5%, which is odd and almost the equivalent to what the S&P 500 rallied off that CPI print in October from the low.
It would imply, I think, that much of the rally, again, was what we have learned to see throughout this bear market. Events lead to elevated implied volatility, and once the event ends, the IV drops dramatically, and stocks squeeze higher. This tells us that these rallies, which feel good, are not stable.
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Also, today, we saw a tremendous amount of call volume, with most of it for today’s expiration date. This tells you that you saw an IV-led rally and a gamma squeeze on top of it. Call buyers push the markets higher by creating positive deltas for market makers to hedge against, causing them to buy S&P 500 futures.
Tomorrow the bond market is closed, so it will be interesting to see how the stock market trades without bonds. The 2-yr rate fell today to around 4.30% and stopped at support.
The 10-Yr also closed right at support today as well.
I’m concerned about the dollar because it fell through a significant uptrend, and a weakening dollar does not help the Fed’s cause. The next level I am watching to see if it holds comes at 107.25. If that breaks, then the dollar probably has much further to fall.
Why is the falling dollar terrible news? Because it means higher commodity prices, and copper was not an exception today, rising by more than 2%. What does copper at $4.6 mean for inflation?
There is not much to say here, the QQQs are now back to resistance around $285, and unless the options market starts playing, the QQQs could be stuck at $285 because that is roughly the area where the prominent call positions are.
Better luck next time,
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.