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The S&P 500 finished the day about 38 basis points higher. It had been up earlier, reaching a peak of around 55 basis points. The index climbed to approximately 6,085, filling the gap from the December 12th opening. That level acted as resistance for most of the afternoon.
However, market breadth was weak, with more decliners than advancers. In the S&P 500, about 320 stocks closed lower, while 182 finished higher. This trend has persisted for some time. Decliners also outpaced advancers on the NYSE.
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As a result, the RSP, the S&P 500 Equal Weight Index, finished the day down 33 basis points. This marks a continuation of a recent trend, with the RSP down about 4% from its high on November 24th. The index broke an uptrend that had formed on August 5th, connecting with the November 5th lows. It has now fallen out of its prior trading channel.
Another notable development today was the VIX index, which rose to around 14.70. The VIX has been trending higher since its December 6th low, driven by increasing realized volatility. Historically, low levels of realized volatility make it difficult for the market to move significantly higher or lower without a subsequent increase in volatility. Today, 10-day implied volatility rose to 8.08, while 20-day implied volatility was 6.63—still very low historically.
The implied correlation index increased to about 8.5, a modest rise of 30 basis points but a very low reading overall. Rising implied correlation and volatility often coincide with market peaks and reversals.
Looking at the S&P 500 gains, Broadcom and Tesla were the primary drivers. Broadcom accounted for about 53% of the day’s gains, climbing 11%, while Tesla contributed 35% with a 6% rise. On the downside, NVIDIA declined, contributing 25% of the day’s losses
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Tesla is seeing a sharp rise in implied volatility, which could pose challenges. The skew has flipped negative, with 105% moneyness one-month implied volatility levels now exceeding 95% moneyness levels, indicating high demand for calls. At these levels, call trading becomes less profitable. For example, today, Tesla’s most active options were Friday’s $500 strike calls, priced at about $4. For holders to profit, the stock would need to rise to $504 by expiration—about 7–9% above its closing price of $465–470. If the stock doesn’t rally enough, these options will expire worthless.
This dynamic may lead to a reversal as call traders unwind positions and market makers adjust their delta hedges.
The increasing cost of leverage, reflected in the widening spreads of S&P 500 total return futures, further complicates the outlook. January contracts are now trading 78.5 points higher than December contracts, while March contracts trade 43 points below January. Rising financing costs for these futures add to the market strain.
Interest rates didn’t move much today, but tomorrow’s retail sales data could shift focus back to rates. A hotter-than-expected number could trigger a spike in yields, while a weaker number might lead to a sharp decline.
Overall, significant undercurrents in the market suggest growing strain beneath the surface. While mainstream sentiment remains bullish, it is important to consider the less visible dynamics at play are essential.
Have a great evening, and we’ll see you again soon.
-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.
Subscribe to receive this FREE daily commentary directly in your email
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.
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