Talk About A Close Call!

NVDA saves the day; Specific Price Targets into "One More High"; Growth Rotation Triggered; "Date-Dependent" Cheat Sheet; Yen Carry Trade Warnings

Which Way Wednesday?!

Just before I closed my trading room at 11AM today, EVERY component of DIA was red - all 30 issues.

VIX was just poking above my warning level of 21.19 when everything changed.
VIX reversed lower, dropping 18% peak to trough. It was 11AM when Jensen went on CNBC to defend the price of NVDA servers.

Before that, USDJPY stabilized on critical 140.80 support; the 10Y yield popped up off key 3.62% support (on a CPI print that ensured Fed is only likely to cut 25bp next Wednesday); and Oil stopped exactly on $65.65 key monthly support ahead of today's calm EIA report.

Talk about a close call!

I had just written yesterday to clients that I was LOOKING for a macro trigger to stabilize markets so we didn't fall over the cliff, and also so markets could run higher into OpEx and reach those still-untagged hourly gap fills higher. I didn't expect it would be a CPI-Jensen combo punch! But whatever works!

You can also thank the NVDA turn for forcing negative gamma positive!
The biggest rips happen in negative SPX index gamma as the dealers will be forced to chase the move.

**They** Knew...

Which stock did I highlight premarket that had a LOT of bullish option flow at close Tuesday, before the debate and CPI print pre-market?

In the sea of red this morning, especially those juicy bank shorts I highlighted past two weeks and especially yesterday, which stock was bright green?

And even despite sizing up the chase short in SPX to Friday's 5425.76 gap fill I called out after getting rejected at 5450, which stock did I say was bullish?

Yup, NVDA.

Maybe they anticipated this news released last night.

US Closer To Green Lighting Nvidia Chips For Saudi Arabia - @semafor

Maybe they knew CPI would delight and/or Jensen had a TV appearance, but it was first thing I said premarket in my live trading room and it was the flow I called out at the open:

 "**they** are hammering NVDA calls!"

I called out the 10/4 strike of great interest as well as $35M of Jan 2025 directional calls. I even highlighted the $118 call as great target for a chase.

It all happened quickly.
VIX reversed at 11am after CNBC posted the interview and those $118 calls I highlighted early in my #LiveTradingRoom went on to make 1000% if chasing a Fri expiration.

So it wasn't the debate or even CPI that caused the trigger for the rally we've been looking for to stabilize markets so they can move higher into those key gap fills. It was the CEO of NVDA.

Want more proof that this is the market that NVDA made?
Amidst all the great shorts on our screens into this 11am ET reversal of size, NVDA was the lone green-on -the-screen.

And as @MichaelMOTTCM highlighted:

the $NVDA move equaled 55% of the $SPX move today.

"One More High" In Play?

Do not get me wrong: I am still uber-bearish big picture. I see LIQUIDITY DEFLATION everywhere. It can take a few weeks and up to two months, but not likely more.

And it does not mean I can't see "One More High" tactically in equities - as I have posted repeatedly.

• SPX 5658.88

• QQQ 495.41

• NVDA 125.52

• XLK 232.84

• AAPL 234.29

I need these tagged and then let's see.

VIX likely heads to 15.16 before this rally is done.
Use 19.29 as your intraday trigger: market bearish when above, bullish when below.
And use 21.19 as the "Big One", as in very market bearish when above.

Growth Rotation Triggered

See charts I showcased in my live trading room below - from week ending SEPT 6th, then what it looked like after market close Tuesday SEPT 10th, to how it looked today at market close SEPT 11th.

This is the market NVDA built and we are just passing through it.

US August CPI & PPI Color

US August CPI: Further moderation in pricing & more evidence that price stability has be established.  0.2% increases m/m & 2.5% y/y. Core up 0.3% & 3.2%.
@joebrusuelas

Almost 90% of inflation this month came from car insurance and a lagging, overstated shelter reading. I still contend Inflation isn't the problem.

(Labor is - so jobless claims and unemployment rate moving higher will trigger more volatility and pull forward recession risk. But until then, it is a market trying to stay stitched together into the election.)

The big take away today was that, for now, the in-line CPI print did enable market to price in Fed cutting to normalize versus accommodate!

Next up: PPI and WolfRichter warns it could run a bit hot into end-of year.

If so, I have been thinking of a model that might help to rationalize economic data with yield curve inversion with risk asset moves.

Overly-Simplistic Data-Dependent Cheat-Sheet

• Inflation cooling = more Fed cuts.

• Inflation warming = less Fed cuts.

• The more they cut, the less bonds rise/yields fall.

• The less they cut, the more bonds rise/yields fall.

• The lower the yields, the lower the net interest income US banks make, which hurts GIS banks & lending.

• The higher the yields, the greater the risk of EM stress & FX devaluation; US regional bank failures & CRE defaults.

• The less they cut, the more the curve inverts, the bigger the problem for banks now that inflation expectations & growth are falling.

• The more they cut, the steeper the curve, the bigger the problem for tech as lower yields trigger deflation & carry trade unwinds forcing liquidity deflation in equities which forces the wealth effect lower which triggers recession.

Yen Carry Trade Isn't Done. It Just Started in July!

Oil is falling and it's tied to the yen carry trade and Nasdaq performance.

This is a mantra I have been talking and writing about often for clients - first in November 2023 and again banging the drum since March.
So I want to make sure it is well understood.

As a reminder, this is what I wrote for clients June 19th, and reviewed all through the yen carry trade unwind in July/Aug:

"I don’t see higher oil...
paying closer attention to the yen carry trade as oil serves as a sort of “currency hedge” against Yen devaluation.  By that I mean, if oil prices go down, typically the yen strengthens."

And as yen strengthens - USDJPY falls - treasury shorts are unwound (causing bonds higher/yields lower) which triggers leveraged longs to unwind their VIP holdings in MAG7.

I REALLY NEED TO EMPHASIZE IT'S ALL RELATED

• Yen is a carry trade.

• Bonds are a carry trade.

• Oil is a carry trade.

And ALL of it is tethered to each other and the Nasdaq and to copious amounts of LEVERAGE and counter-party risk.

Which brings me to banks and how last week I said both banks & insurance sectors were rolling over.

Tuesday, GS warned on trading revenue losses; ALLY warned on consumer debt financing default spike; but the big market-moving news for the sector was JPM warning that much lower rates will hurt net interest income.

I warned August 19th for clients:

But with USD AND OIL AND YIELDS also falling, the equity call-chasers are getting loud, not realizing how bearish this combination is to hitting carry trade hedges and bank NIMs and economic growth. But the market doesn't see that yet.

And it won't unless it knows what to look for: policy interventions failing and liquidity deflation succeeding.
Slowly then quickly.