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6/20/24
#Stocks: $WDC
#Macro: #$NDX, $SPX, $QYLD
Recent Titles for Members:
- Zoom Session Replay
- The Winds Of Change
- Spreads Widen As Risk-Off Sentiment Strengthens
- The Market May Be Under Estimating May CPI
- Stocks Trade Mostly Flat Into Big Week of Data and Fed
- Live FOMC Session 6/12 @ 1:45 PM ET
- Strong Job Report and Hot Wages Sends Rates Soaring
Stocks finished basically flattish, with the S&P 500 down around 20 bps, but with 297 stocks up and just 204 down on the day. Tomorrow is the big quadruple witching day, with a large amount of gamma due to roll-off in the options market. The index options will expire at the open, while ETF and single stock options will expire at the close. Typically, when gamma levels decrease in the market, the trading range, also known as volatility, expands.
Additionally, the QYLD ETF will sell a covered call for the July expiration date tomorrow, which should create a sizeable amount of NDX futures to sell and be delta-hedged by the market maker. Today, the NASDAQ 100 was down despite the QYLD ETF buying back a notional $10 billion call position it sold back in May. Typically, the ETF will sell around 5,000 contracts of an at-the-money option for the next month’s expiration date.
The market-wide options expiration date and decreasing amount of gamma could allow the market to turn lower and the recent rally to finally break from a timing perspective. It isn’t unusual to see the market change trends around OPEX dates. Additionally, as discussed over the weekend, the NASDAQ 100 has a rising wedge pattern in the potential throw-over phase, a 100% extension, and a 61.8% extension from two different points over the past 18 months. It seems like a good place to turn.
One potential target would be the 61.8% retracement level, which many technicians look for during a retracement phase, along with the 38.2% retracement level. Now, it could be entirely by chance; however, a 61.8% retracement in the NASDAQ 100 of the entire rally off of the October 2022 low would bring the NDX back to the lows seen in October 2023, wiping out all of the gains witnessed since then.
A similar style retracement in the S&P 500 would result in the index falling to around 4,200.
You can look at the setups, and considering how over-bought the markets are, it is possible to see something of that size. Fundamentally, PE ratios are high, and fundamentals won’t support this market. More importantly, the technicals are significantly overextended on the NASDAQ. At least as of today, the NASDAQ 100 had an RSI of 71.2 and was above the upper Bollinger band on the weekly chart, which doesn’t happen often. Since 2018, those conditions have happened a few times, and those times saw some pretty sizeable sell-offs. It is something to be aware of and not suggesting at-all someone should “short” the market.
In the meantime, oil was stronger today and moved above $81 again. It looks like a solid base has formed in oil over the last year; despite multiple times, it could have broken lower, and momentum seems to be turning higher. A move in oil back to $87 doesn’t seem that crazy to me.
Western Digital’s chart is interesting at the moment, as it rests on an uptrend. The RSI trend has broken, suggesting that momentum is fading and that perhaps the stock will break lower. A break of the trend line at $76 could lead to a further decline to around $71 or so. Micron will also be reporting next week, and that could have a heavy hand on Western Digital’s next move.
Anyway, that’s all.
-Mike
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.