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Stocks finished the day lower, although not by much, even though they finished well off their intraday lows. Not sure what happened in the morning, but we saw implied volatility rise sharply.
If I had to guess what drove trading today, it was a big morning drop that pushed implied volatility sharply higher. The index fell to around 6,870, below the put wall at 6,900. That led to those puts being monetized and closed out, which started pushing implied volatility down. As the index rose, anyone who sold calls or bought puts on the way down got screwed and had to rush to unwind those positions. With the index stalling around 6,950, it took a close buy imbalance to finish the final thrust higher.
If I had to guess…
What was really interesting today about the Meta rally was that the 5-Yr CDS actually widened, not a lot, but it did widen. Not what I would have expected to see given the stock market’s relief rally. This will be something to watch in the days ahead. For now, the CDS is trading within the same range it has been in, but a push higher could change how the market views the equity.
So much for QE, whatever you wanna call it. Reserve balances fell under $2.9 trillion. Imagine what reserves would be if the Fed weren’t buying T-bills. I know everyone is very excited about the quarterly refunding announcement on Monday, February 2, but I would think it could have some importance if, for some reason, the Treasury decided, because of the ballooning debt level, thought that it would be appropriate to increase the end-of-quarter TGA balance to $950 billion. That would not help liquidity.
Expanding on liquidity, today and tomorrow are Treasury settlement days. Today, Bitcoin fell about 6%. At least based on the technicals, Bitcoin appears to have broken out of a bear flag, and if support at $83,000 is broken, the $75,000 region could be the next stop. Maybe the settlements that come next week for another $64.3 billion can even help it get there. 😛
-Mike
Glossary by ChatGPT
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Bear Flag – A short-term consolidation pattern following a sharp decline that often signals the potential for further downside.
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Buy Imbalance – A condition at the market close where buy orders materially exceed sell orders, often influencing late-session price moves.
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CDS (Credit Default Swap) – A derivative contract that provides insurance against the default of a borrower, often used as a gauge of credit risk.
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Implied Volatility – The market’s expectation of future price volatility derived from option prices.
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Put Wall – A price level with a large concentration of open put option interest that can act as a temporary support or inflection point.
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Reserve Balances – Deposits held by commercial banks at the Federal Reserve, commonly used as a measure of system liquidity.
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TGA (Treasury General Account) – The U.S. Treasury’s account at the Federal Reserve used to manage government cash flows.
Disclosure
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.
Subscribe to receive this FREE daily commentary directly in your email
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.
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