February 16, 2024

10:24 am

The overnight melt-up in the SPX has started to melt down, instead.  Speculators are selling their calls and buying puts in a frenzy to stay ahead of the reversal.  The options market may reinforce the decline beneath 5000.00 as short gamma becomes very populated beneath that level.  What’s even more interesting is that 90% of the options market falls off at the end of the day.  It was speculators overwhelmingly buying calls that fueled the melt-up.

ZeroHedge gives an example, “After its 250% rally over the past 21 trading days, Super Micro (SMCI) is… umm… red!

It’s been up 18 of those 21 days with the biggest daily decline being 0.6%, so this is notable. SMCI is back below $900 (from $1080 highs)

And it’s 0-DTE options traders that are suddenly reversing. They started by aggressively selling calls and are now piling into puts…”

 

8:15 am

Good Morning!

Welcome to delirium Friday!

NDX futures rose to an overnight high of 17961.00 as the am options settlement looms.  The significance of this is that, if this bounce is a Wave two, it may not exceed the all-time high, leaving empty space beneath it at the end of the day.  The 50-day Moving Average at 16930.42 may be its first stop on the way down.

Today’s options chain shows Maximum Investor Pain at 17825.00. Long gamma resided above it with heavy emphasis from 17900.00 to 18000.00.  Short gamma resided beneath 17800.00.

ZeroHedge remarks, “Junk takes over leadership

Low quality led the way yesterday with Commercial Real Estate (+3.75%) and Regional Banks (+3.40%) while Megacap Tech (-0.5%) and Obesity Drugs (-1%) lagged meaningfully. Buying junk and selling Thematic Winners of course only happens in the 8th or 9th inning of a bull run. If only there were more signs of peakish frenzy….

Is the whole market about to go Meme…?

SMCI is +86% in February (11 sessions). The stock finished the day with an RSI of just under 97, the highest level since Gamestop in early 2021, and look how well that turned out. SMCI is currently on a 9 day winning streak.”

 

 

SPX futures have risen to 5043.20 in the overnight market, not exceeding the all-time intraday high at 5048.39.  Some look at the closing high last Friday at 5026.61, but I do not, since the market is continuous.  In addition, the futures are pulling back and the cash market may open in the red this morning. Emotions are running high and the most looked-for information on Google has been “call options.”  Time to sell.

Speaking of options, today’s morning op-ex shows Max Pain at 5025.00.  Long gamma resides above this with heavy emphasis at 5050.00 and above.  Short gamma may begin at 5020.00, but short speculation becomes very crowded beneath 5000.00.

The PM options are similar, but with massive puts & calls at 5000.00.  There may be high dudgeon in the options market today.

ZeroHedge reports, “fter stocks successfully recovered from a mid-week rout following the much hotter than expected CPI print, resulting in a burst of BTFD and flurry of 0DTE buying, on the last day of the week, S&P 500 futures were up 0.2% – amid bigger gains in European stocks …

… and were on pace to dodge a weekly red candle in the process setting up a record 15th weekly gain of the past 16, as the market no longer drop. Ever. Meanwhile, the euphoria was even more ridiculous over in tech world where Nasdaq futures accelerated their silly meltup, rising 0.5%, propelled by Applied Materials rising ~13% in premarket trading while the current generation’s Gamestop, Supermicro, was up another 6% premarket, sending its RSI to a record 98.”

 

 

VIX futures rose to a morning high at 14.48, as it edges back toward (above) the mid-Cycle support/;resistance at 14.87.  It remains on a buy signal above the 50-day Moving Average with further confirmations possible above the mid-Cycle and at a probable breakout above 17.54.  Most investors are slow to realize the nuances of the VIX.

Next Wednesday’s op-ex shows Max Pain at 14.00 with short gamma primarily at 13.00-1350.00.  Long gamma dominates at 16.00 and runs to 42.50.

ZeroHedge observes, “VIX seasonality

We are just at the point in time in the calendar when VIX tends to spike.

Source: Equity Clock

 

Just in time

Second half of February is bad for stocks.”

 

 

TNX futures rose to a morning high of 43.33 before easing back beneath 43.00.  The Cycles Model suggests it may resume the rally to even greater highs next week.

ZeroHedge remarks, “The yield curve has proven a poor (or very early) recession indicator in this cycle. This year, though, it will be far more useful in describing the evolution of liquidity and of funding markets, both critical to highlighting when the stock rally might be about to flounder.

Specifically a bear steepening – longer-term yields rising more than shorter-term ones – will indicate that liquidity and money velocity are in jeopardy from rising government interest payments, and that funding markets are approaching the point where reserves could shift from abundant to scarce abruptly.

Both will imperil risk assets.”

 

USD futures made a modest new low overnight, but appears to be reversing as it may resume the rally.  The Cycles Model suggests trending strength may be on the rise this weekend and into next week.

 

 

 

 

 

 

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