When Will I Say, "Brace For Impact"?

CLUB/EDGE client post. Focus on OpEx & 10Y Yield call.

» CLUB/EDGE client post Friday June 14th, 3:17 PM.

As breadth continues to fall - under the surface (a trend I have tracked daily in my live trading room for clients since NVDA earnings May 23rd) - the market has only tightened its grip on gamma & VIX, which is, as I explained in my trading room: supportive of price.

Weird I know.

And despite the tremendous leverage in equities - at a time where both USD & bonds are bid and Eurozone volatility is lit - many are looking for "A Top" or at least a reflexive sell-off "soon".

It just "feels like it should crash", amirite?

And yet, I still don't see a "VIX" event enough to warn clients to "Brace For Impact".

Not yet...

Even though, NYSE is a train wreck, and SPX has an air pocket of risk below.

Simply, QQQ is a 2000-esque freight train which is up 86% off JAN 2023 lows approaching 2000-esque 100% bubble territory.

As such, we could go tag that $5500 call wall - a mere 1.4% higher - and QQQ could go parabolic on this yield drop and NVDA manipulation.

The "unclenching" in VIX will occur, I believe, once the market sees the 10Y < 4.2%  - and looks over its shoulder to see ALL the economic-sensitive sectors from banks to commodities falling further. That includes gold btw.

THIS needs to happen, I believe, before we get any breakdown of these bullish AI TECH flows that forces short vol positions to unwind.

Trading Room Notes Bear Repeating

Painful market past two weeks because nothing has changed.

Concentration risk in AI TECH - and option flow as well as money flow into AI TECH - is still bullish.

Breadth breakdown and selling in everything else is just a big accident waiting to happen, making for not just a bifurcated market but an air pocket of risk forming that the market is ignoring while they chase QQQ, SPY, NVDA calls of size, still. 

ARM getting added to Nasdaq 100 helping the euphoria with AVGO now 7th largest weighting in NDX post earnings.

SMCI expected to also join NDX 100. When will this stop?

It's the market we have: treacherous as the selling under the surface in value/defensives/cyclicals/non-cyclicals/you-name-it makes it a stock picking market for sure with few buying protection and VIX compressed.

But TLT did get to my 50W and vice versa as the 10Y is at 4.2%.

Below will be bearish banks and insurers, but a likely wee bounce here is next. An overshoot into 4.09%, however, is likely in coming weeks.

This could disrupt positioning in a big way.

Translation: Additional rallies will be challenging/challenged as further declines in bond yields come with weaker growth.

Remember, market loves Fed rate cuts (we went from 3 to 1 for 2024) AND re-accelerating growth, but that narrative can trigger unwinding as bond yields fade.

I really don't see the USD continuing above 105.80 with ease, but much depends on Euro area volatility during this recent "MAGA Wave".

We could see that EU drama cool and USD with it. Maybe DXY falls with yields, but this time I'm not seeing that as bullish for equities or commodities.

Another macro risk event is BOJ likely does nothing.
Only tell in this regard is my US30-JP30 yield spread indicator, and it warns of more yield weakness ahead.

Craig already warned that Friday/Monday for TGA issuance could put a strain on liquidity and markets. So far, this is playing out with the impressive selling in all things non-AI tech / GLP-1.

Also, Bitcoin is rolling over, and it is a great liquidity tell. Getting/Staying below $65K next week could bring more pressure on NDX in time, but for now, the melt-up I called IF we got above SPX $5340 is in play since Wed June 5th, and my Growth-to-Value ratio has gone parabolic exact same day.

Market Thoughts Into OpEx

These were posted for me in chase-ideas as summary of my trading room today.

Loosely held market thoughts for direction into OPEX next Friday:
We have VIX expiry TUES and market holiday WED, so theta decay will be really fast on short duration option trades in general, and yet...

SPX 5500 CALL WALL + JPM UPPER COLLAR could tag, as long as VIX stays compressed AND because NVDA has more calls expiring than SPX!

Translation: since NVDA earnings 5/23, NVDA + QQQ calls OTM keep getting bought and going ITM with June 21 expiry. That provides SUPPORT - as dealers buy strong gamma flows.

NEXT FRIDAY should be a great place to short - intra and for summer as dealers SELL OUT OF THEIR STOCKS as those ITM calls expire for NVDA + QQQ.

After Opex, they have a clean slate, but a weaker "floor".

I will be looking to see IF IF IF the oversold nature of VALUE actually stops going down, and the weak floor in NVDA + QQQ breaks so as to "catch down" to value.

This is when my growth:value ratio would 'peak' and roll over and provide tailwind for QQQ puts.

Otherwise, small caps could actually rotate higher as NVDA + QQQ grind sideways along the "floor". Too early to tell, but next Thurs/Fri should set up for great shorting on Friday and potentially in MAG7 + AI TECH for at least a trade ;-)

I hope this helps!! Wishing all a great weekend!