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Today it was the S&P 500’s turn to fall, dropping 55 bps, while the RSP Equal Weight ETF managed to rise 12 bps. Round and round the market goes—where it stops, nobody knows.
It’s almost comical to watch how this market trades day to day, always finding a Mag 7 stock to lift or a Mag 7 stock to knock down, just to keep dispersion alive.
Yesterday, Apple was the hero, up more than 4% alongside Nvidia. Today, Amazon played the sacrificial lamb, falling 3%, with Meta and Microsoft chipping in, each down about 1%. At this point, it feels like an absolute joke.
Who knows what tomorrow brings—it all depends on whether the options crowd can keep volatility contained enough to keep the circus going.
Meanwhile, volatility moved higher across the board: the 1-month correlation index, the S&P 500 dispersion index, the Left Tail Index, the VIX, the VVIX, and the S&P 500 Consistent Volatility Index all rose. A clean sweep higher, even though it makes no sense—since, in theory, dispersion should fall when correlations rise. But hey, I don’t make the rules.
We also saw the 9-day realized volatility tick higher, now closing in on a move above the 21-day realized volatility. At the same time, 63-day realized vol is compressing, and it won’t take much of a move in the S&P 500 to push 21-day vol above 63-day. That could be enough to trigger the unwinding of vol-control funds’ short index implied volatility and long single-stock volatility trades.
At this point, it all screams of desperation—and as I write tonight, it would seem the music has stopped, and all I hear is silence.
-Mike
Glossary by ChatGPT
Correlation Index (1-Month) – A measure of how closely stocks in the S&P 500 move together over a one-month horizon.
Dispersion Index (S&P 500) – An index tracking the variation in returns among individual S&P 500 stocks.
Equal Weight ETF (RSP) – An exchange-traded fund that gives each S&P 500 company the same portfolio weight, regardless of market capitalization.
Left Tail Index – A volatility measure focused on downside risk or extreme negative market moves.
Mag 7 – Refers to the seven largest U.S. tech-driven stocks: Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia.
Realized Volatility – The actual historical volatility of a security or index, measured over a specific period (e.g., 9-day, 21-day, 63-day).
Vol-Control Funds – Investment strategies that adjust exposure to equities based on volatility levels to maintain a target risk profile.
VIX – The CBOE Volatility Index, which measures expected 30-day volatility of the S&P 500 based on option prices.
VVIX – The volatility of the VIX index itself, reflecting how volatile market expectations of volatility are.
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.
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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.