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Stocks finished the day sharply lower, just one day ahead of the most important jobs report ever. Yes, that’s right—the VIX 1-day rose and closed at 31.2 today. The market seems to think tomorrow’s job report is critical unless there is something else the market is worried about.
I’m not sure how to interpret that high of an IV level other than the possibility that the data itself may not even matter. Once the report is released at 8:30 AM ET, the stock market is likely to see a big move higher as implied volatility gets crushed.
Considering that nearly all of the delta on the S&P 500 is negative, a significant amount of put value will be lost tomorrow. The decay in premiums will likely force market makers to buy back S&P 500 futures.
But again, we’ve seen this play out before, and that reset in IV doesn’t last all day. If the IV reset happens and sellers step in later—which is possible given that CTAs are sellers and we’re in negative gamma—then the S&P 500 could test support at 5,690. If that 5,690 level breaks in the days ahead, the next significant support doesn’t come until 5,400.
The jobs report plays a crucial role in interest rates, and today, we saw the 10-year rate rise to the 10-day exponential moving average, where it stopped and reversed. For now, the 10-year is wedged between the long-term trend, which appears to be support, and the 10-day exponential moving average, which serves as resistance. The problem is that only one can prevail.
Finally, the USDJPY shows clear signs of strengthening, especially with the 10-year JGB now trading above 1.5%. Yesterday, it broke through 149; today, it extended further to around 147.90. If we drop below 147, I believe the JPY could strengthen to 143 fairly quickly. If that happens, the market could become very interesting very fast.
-Mike
TERMS by CHATGPT
•VIX 1-day – A measure of short-term market volatility, specifically for the next trading day.
•Implied volatility (IV) – The market’s forecast of future price fluctuations, often derived from options pricing.
•Delta – A measure of how much an option’s price moves relative to the underlying asset.
•Negative gamma – A condition where market makers need to sell into rallies and buy into declines, potentially amplifying market moves.
•CTAs (Commodity Trading Advisors) – Professional traders or funds that use systematic strategies to trade futures and options.
•Market maker – A firm or trader that provides liquidity by continuously buying and selling securities.
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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.
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