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#Macro – $SPX, #Rates,
- 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 had a boring day; I think the last three days add to the idea that last week’s rally was driven by options market positioning, and the declining market breadth supports that idea even further. What will only further validate things if we go from being stalled out to stopping and then dropping again, just like the other rallies we have seen since the start of 2022?
The S&P 500 has traded back to prior resistance around 4,400, the option call wall, and a resistance level from mid-October. Additionally, it marks the 61.8% retracement level from the drop that started on August 31. This is an important level for the S&P 500 because what happens over the next few days will tell us a lot, not only about what happens over the next week, but potentially what leg we are in this market, and that could tell us where we go for some time to come.
I continue to think we will hold resistance here because we still have the call wall for November OPEX at 4,400. For the market to move higher, we need to see that call wall roll higher to 4,450 or 4,500. So far, that hasn’t happened, probably becuase we haven’t come close enough to it yet. Additionally, the Zero gamma levels appear to be creeping higher, and if the S&P 500 flips back into negative gamma, we will likely see implied volatility increase again, and prices fall.
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The 10-year rate is now getting very close to or already has broken an uptrend and has closed below the 50-day moving average. This means that a drop below 4.45% or so could lead to a bigger drop in yields to around 4.35%, which would take us back to a big breakout level. Today’s Treasury auction for the 10-year was good enough not to be a concern, which helped to lower some rates. Tomorrow will be the 30-year auction, and we will have Jay Powell speaking in a Q&A session.
The 10-year has fallen by around 40 bps since the Treasury refunding accountment last Wednesday morning. That, coupled with the S&P 500 rally, resulted in the Goldman Sachs financial conditions index dropping sharply and erasing nearly a full month’s worth of gains in just a week. You have to wonder what Powell thinks about this. It seems pretty clear that if you give the market an inch, it takes 10 yards, so it is almost as if Powell has to go back to being a bit more hawkish to avoid financial conditions easing even more.
Anyway, not much more to add.
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.