I watched a post debate panel this morning and the one big take away after hearing comments from undecided voters from both sides of the isle was that people are sick and tired of the non-stop drama. Exhaustion runs high and if there is one sentiment that everybody shared is that they just want to get back to work and their respective lives for that matter.
With another ‘stimulus’ bill inching its way through Congress the Dollar has taken yet another tumble while 10-year treasury yields jumped 0.81% in anticipation. I’m just thinking out loud here but wouldn’t it be more honest to simply call it the ‘Big Tech Pump Up’ bill and then to transfer the money directly into Amazon’s corporate account. Just the other day I was talking about shorting big tech if Trump gets his 2nd term but now I am not so sure anymore.
For all intents and purposes 2020 has already been the most contentious and violent U.S. election season in living memory. With a nation in a state of a cold civil war one would assume that the financial markets would take note. And under the hood they did indeed respond by keeping implied volatility elevated throughout the year. However, with the exception of a much overdue correction earlier this month we currently seem to be in a pre-election holding pattern. What should we make of that and where are we heading next?
The past four sessions turned into a wild ride but as of the Friday open the SPX has been getting nowhere fast and finds itself almost exactly where it started the week. This puts us in a very interesting situation for one main reason: With a monthly and a weekly contract expiring this morning, a 70 handle EM range, and quite a bit of gamma risk there is potential for a significant move today.
Financials kicked off the final earnings season of 2020 and as a card carrying manic market megalomaniac it is incumbent on me to start parsing for potential IV squeeze victims. Much to the chagrin of some of you directional cowboys that is my favorite play but I would be remiss to not point out that implied volatility is not the only way to play earnings. But let’s take things from the top by looking at the overall market:
Something pretty interesting happened over the weekend as I was cruising Airbnb for potential weekend get-aways here on the Iberian Peninsula. Since I’ve always been a stingy bastard I’m not ashamed to admit that I was pretty perplexed by the exorbitant prices that I simply couldn’t square with the glaring lack of demand in tourism Spain currently is experiencing. Part of that of course is due to recurring and erratic COVID-19 lock downs and various other entry restrictions here in Europe. But some of it is also purely self-inflicted as excessive price gouging over the past years already started to be a topic of contention among visitors back in 2019.
It’s Friday morning before the open and the SPX is pinned right at the edge of the weekly expected move (EM). The ES futures pushed a little bit higher overnight but are now treating water awaiting further instructions. Which makes it a textbook example of the very phenomenon that has driven equity markets to the edges of the weekly EM since the introduction of weekly options by the CBOE in 2016. But what exactly is causing this phenomenon, or market behavior in the first place?
In my Monday post I promised you a volatile week and judging by the past two sessions the market does not intend to disappoint. If you take what historically is already the most volatile week of the entire year, add a heaping of political brinksmanship, a controversial presidential election process, ongoing riots, burning cities, an impending release of classified information by the DOJ, and a healthy dash of good old fashioned MSM hyperbole, then you’ve got yourself a veritable tinderbox of market volatility just waiting to be unleashed.
It’s the first Monday in October and that means it’s time to talk monthly statistics. Which are actually super interesting if you’re a stats nerd like me. But even if you’re not you should take heed as there are many misconceptions about this months floating around out there. So let me try to set the record straight, and I’ve brought plenty of exhibits to back up my bold claims.
For the past four sessions equities happily floated along in cruise control, fully in line with an anticipated positive close as suggested by the seasonal statistics for week #40 (see my Monday post). However as it is 2020 A.D., and per my rather prescient post on Wednesday, we should have been prepared for the proverbial spanner to once again be thrown into the flaming political train wreck already hurdling toward us.