November 8, 2021

7:50 am

Good Morning!

SPX futures are positive, but no new high was made this weekend.   SPX closed Friday above its Cycle Top support at 4690.03, leaving it capable of going higher.  Today is day 249 of the Master Cycle which began at the March 4 l0w.  While the SPX is in the turn window, there may yet be time for another high this week.

ZeroHedge reports, “US futures rebounded from a modest overnight selloff as big industrial firms were supported by Friday’s passage of a $1 trillion infrastructure bill, while Tesla fell on Elon Musk’s plan to sell about a tenth of his stake after an impromptu Twitter poll suggested he “should” do what he likely already planned to do anyway. Oil, Bitcoin and treasury yields all rose while the dollar fell. At 745 a.m. ET, Dow e-minis were up 64 points, or 0.2%, S&P 500 e-minis were up 1.50 points, or 0.03%, and Nasdaq 100 e-minis were down 1.25 points, or 0.01%.”

ZeroHedge observes, “Thinking about options…

We are experiencing a “gamification” of options trading by retail. Few of the new “punters” understand derivatives, but they understand that things move quickly.

So far so good, but things could get nasty from an aggregate risk point of view. With options trading exploding again, there will be a lot of unmanageable options risks to consider, irrespective if the market moves higher or lower.

Poor liquidity and “gamma holes” could become a problem for dealers trying to manage “the other side” of the retail options trade.

Below are some of our recent posts on the current options (calls) trading mania.

Options mania is real

Retail is extremely active, and they love punting options. Below are a few stunning facts via Goldman’s Scott Rubner:

1. single stock option notional (140%) now exceeds single stock shares notional

2. over 70% of options traded have an expiry of two weeks or less (more in the 2,3,4 day range)

3. $904bn (Thursday stock option notional). This is largest single stock option notional traded of all time.”

 

Today is also day 249 for the VIX.  VIX futures probed to a weekend high of 17.28 and remains mildly positive.  The 50-day Moving Average may be coming within range at 18.40, with yet the mid-Cycle resistance at 18.78 to be overcome.  Virtually no one is buying puts, keeping the VIX at very low levels, so the VIX may be seen at lower levels this week.

ZeroHedge remarks, “Three weeks ago, when stocks were holding on to dear life – and key support levels – amid a wave of bearish sentiment which threatened to drag risk below its July lows, Goldman took the other side of the trade and said it expected a huge market meltup in the coming weeks, a call which it doubled down on one week later. In retrospect, the vampire squid was absolutely correct, with the S&P soaring by 400 points in the past month…

… in the process demolishing the wall of worry, even if the meltup was widely missed by professional speculators – many of them crushed by the turmoil in bond markets – who according to Bloomberg, were going risk-off in stocks, cutting leverage at the fastest pace in months as many bearish bets backfired.”

 

TNX ventured beneath the mid-Cycle support at 14.83 and the 50-day Moving Average at 14.65.  The next support appears to be the 100-day Moving Average at 14.00.  I have identified this move as an Intermediate Wave (B), often known as rogue waves.  Today is day 256 of the current Master Cycle.  This suggests that the 10-year yield may be rising again by the end of the week.

 

 

 

 

 

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