Markets may be closed on Friday for the July 4 holiday, but don’t let the shortened trading week fool you. Thursday’s June jobs report could be one of the most important economic releases of the summer.

In this week’s video, I explain why this report matters so much—not just for the Fed’s July meeting, but for interest rates, the U.S. dollar, and the broader market over the weeks ahead.

I also discuss why the unemployment rate may not be telling the whole story. Beneath the headline numbers, important shifts in labor force participation that could push the unemployment rate lower.

Finally, I walk through the key charts I’m watching, including Treasury yields, the Dollar Index, precious metals, and the S&P 500, and explain why the market may be more vulnerable than many investors realize heading into Thursday’s report.

-Mike

Glossary by ChatGPT

• Dollar Index (DXY): An index that measures the value of the U.S. dollar against a basket of major foreign currencies.

• Federal Reserve (Fed): The U.S. central bank responsible for setting monetary policy and managing inflation and employment objectives.

• Labor Force Participation Rate: The percentage of the working-age population that is employed or actively seeking employment.

• Precious Metals: Commodities such as gold and silver that are often viewed as safe-haven assets during periods of economic uncertainty.

• S&P 500: A market-capitalization-weighted index tracking 500 of the largest publicly traded U.S. companies.

• Treasury Yields: The interest rates earned on U.S. government debt securities, often used as benchmarks for borrowing costs and economic expectations.

• Unemployment Rate: The percentage of the labor force that is unemployed but actively seeking work.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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The S&P 500 finished the day flat, largely due to the rotation in the market between mega-cap names and the semis. The market is finally waking up to the idea that what is good for the semis may be bad for the mega-cap names. We already knew that for a handful of software players, but today’s news from Apple about price hikes sent a different message: higher hardware prices are starting to squeeze margins enough that price increases are now inevitable. The question is whether this is a one-off or the start of a new trend.

I don’t know the answer, but at some point, one has to think that one of these big AI capex spenders is going to say, “Enough.” Which company will be first is the question. With second-quarter earnings quickly approaching, you have to look at the companies that report on a fiscal calendar, perhaps those that are starting a new fiscal year, because they could be the first to jump in front of this.

When looking at the software-to-hardware ratio, using the IGV-to-SMH ratio, it is clear who is winning for now.

I noticed today that the financial sector (XLF) appears to have formed a rising wedge. When connecting that pattern with the broader trend from January through March, it looks like it may be forming a bear pennant. We won’t know if it is truly a bear pennant until we see the XLF either rise above $55 or fall below $52.50. A break below $52.50 would confirm the bear pennant, while a move above $55 would invalidate the pattern.

Finally, for now, Micron’s call wall has held, with the stock pinned around that level for most of the day. No surprise there.

-Mike

Glossary by ChatGPT

• AI Capex — Capital expenditures made by companies to build or expand artificial intelligence infrastructure, including chips, servers, and data centers.

• Bear Pennant — A bearish continuation chart pattern characterized by a brief consolidation following a decline before another potential move lower.

• Call Wall — An options strike with significant open call interest that can act as a price magnet or resistance due to dealer hedging activity.

• Fiscal Calendar — A company’s reporting schedule based on its fiscal year, which may differ from the standard calendar year.

• IGV-to-SMH Ratio — A relative strength measure comparing software stocks (IGV) to semiconductor stocks (SMH) to gauge which group is outperforming.

• Mega-Cap — A company with an exceptionally large market capitalization, typically among the largest publicly traded firms.

• Rising Wedge — A technical chart pattern marked by converging upward-sloping trendlines that often signals weakening momentum and a potential downside reversal.

• Semis — Industry shorthand for semiconductor companies and stocks.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed in this analysis may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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Implied volatility rose throughout the day ahead of Micron’s earnings after the close and Friday’s PCE report. The VIX1D finished around 20, a relatively elevated level that could provide a tailwind for the market tomorrow if we see the typical post-event volatility crush.

Micron has been beaten up over the past two trading sessions, with the shares falling sharply on Tuesday and trading around $1,000 on Wednesday ahead of earnings. As a result, the risk/reward profile has shifted significantly since last Thursday. However, the call wall remains at $1,200, which could prove to be sticky.

The results were far better than expected, and they may be strong enough to override the options positioning. Still, with the call wall at $1,200, the positive gamma positioning could create hedging flows that work against the stock at that level, and in the end, that may be all that matters. If the stock stalls or potentially reverses lower, the $1,200 region is where it is most likely to happen.

-Mike

Glossary by ChatGPT

• Basis Point — One one-hundredth of a percentage point (0.01%), commonly used to describe changes in interest rates or index performance.

• Call Wall — A strike price with substantial open call option interest that can act as resistance due to dealer hedging activity.

• Gamma — An options Greek that measures how quickly an option’s delta changes as the underlying asset price moves.

• Hedging Flows — Buying or selling activity by market participants, often options dealers, to offset changes in market exposure.

• Implied Volatility — The market’s expectation of future price fluctuations, derived from option prices.

• PCE Report — The Personal Consumption Expenditures Price Index report, a key U.S. inflation measure closely monitored by the Federal Reserve.

• Positive Gamma — A market condition in which dealer hedging activity tends to dampen price movements by buying weakness and selling strength.

• Risk/Reward Profile — An assessment of the potential upside relative to the potential downside of an investment or trade.

• VIX1D — The one-day CBOE Volatility Index measuring expected S&P 500 volatility over the next trading day.

• Volatility Crush — A sharp decline in implied volatility that often occurs after a major scheduled event such as earnings or economic data.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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Stocks fell sharply today, with the consolidation patterns noted yesterday in both the S&P 500 and the Nasdaq 100 breaking below the lower end of their recent trading ranges. Clearly, there will need to be follow-through to confirm the move. However, with Micron reporting earnings after the close tomorrow and the PCE report due on Thursday, I would not be surprised to see implied volatility continue to rise, and the indexes remain under pressure.

The same occurred in the Nasdaq 100, which also fell sharply on the day by more than 3% and broke out of its consolidation phase. Today’s move could very well be the start of something larger. The indices have been driven higher by an extraordinary rally in semiconductor stocks, which have powered much of the advance. We also know that a significant portion of the move was driven by options flows, and who knows what role leveraged products may have played.

The point is that the index can fall sharply if the stocks that drove it higher begin to fall sharply. And there is no way of knowing how far those stocks could decline because nobody really knows what they are worth. In fact, when someone argues that Micron trades on a low P/E ratio, that is usually the first warning sign that they do not really understand the stock or the sector.

In theory, I do know what these patterns suggest could happen based on historical precedents and my own experience. But in reality, it is a thankless exercise: if I am right, I get no credit; if I am wrong, I get all the blame. So I am going to pass on that one. You can thank everyone who came before you for that.

Meanwhile, the dollar continues to show strength and has now easily cleared resistance. The only question that remains is whether the dollar can break above 101.75. If that happens, there is room for it to move higher against the euro, pound, and yen.

The Swiss franc is another good example, with USD/CHF pushing up against 0.81. A breakout above that level would likely lead to further dollar strength, potentially carrying USD/CHF all the way to 0.847.

I know that a stronger dollar is supposed to tighten financial conditions, but so far we haven’t really seen that happen. To this point, cross-currency basis swaps have shown very little tightening, suggesting there has not been a meaningful increase in demand for dollar hedges despite the dollar’s strength.

-Mike

Glossary by ChatGPT

• Consolidation Pattern — A period in which an asset trades within a defined range before potentially breaking higher or lower.

• Cross-Currency Basis Swap — A derivative contract used to exchange funding in different currencies and measure demand for currency hedging.

• Financial Conditions — A broad measure of the ease or difficulty of obtaining financing, influenced by rates, credit spreads, currencies, and asset prices.

• Implied Volatility — The market’s forecast of future price fluctuations derived from option prices.

• Leveraged Products — Financial instruments designed to amplify the returns of an underlying asset, often using derivatives or borrowed capital.

• Nasdaq 100 — A stock market index composed of 100 of the largest non-financial companies listed on the Nasdaq exchange.

• Options Flows — Trading activity in options markets that can influence the price movement of underlying securities.

• PCE (Personal Consumption Expenditures) Price Index — A key U.S. inflation measure closely monitored by policymakers and financial markets.

• P/E Ratio (Price-to-Earnings Ratio) — A valuation metric comparing a company’s stock price to its earnings per share.

• Resistance — A price level where selling pressure has historically been strong enough to limit further gains.

• USD/CHF — The exchange rate measuring the value of the U.S. dollar relative to the Swiss franc.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

What is becoming increasingly clear from a technical perspective in the S&P 500 is that the index is consolidating and may be forming a diamond pattern. There appears to have been a widening formation leading into the June 2 peak, followed by the current consolidation phase, which is consistent with a diamond top pattern.

Meanwhile, the falling RSI suggests that momentum has faded significantly over the past several weeks and has yet to recover. That would be viewed as a negative technical signal for the index.

I’m not entirely sure what to call the pattern in the Nasdaq 100 at this point—perhaps a parallelogram or some form of narrowing consolidation. Regardless of the label, both the Nasdaq 100 and the S&P 500 have spent the past several days consolidating. The trading ranges continue to tighten, and the wedge appears to be nearing completion, suggesting that a breakout in either direction could be approaching.

Two-year Treasury yields rose on the day despite falling oil prices, climbing to roughly 4.25%. If the 2-year yield has indeed broken out of the bull pennant highlighted on the chart, the measured move projection would suggest a rise toward 4.4%.

Such a move would likely reinforce the recent tightening in financial conditions and could present an additional headwind for equities.

Meanwhile, the Dollar Index continued to strengthen, having broken above resistance at 100.50 last week and now trading north of 101. If the pattern is similar to the bull pennant seen in the 2-year yield, the measured-move projection would suggest the Dollar Index could extend its rally toward 103.40.

A move of that magnitude would likely create additional pressure on risk assets, weigh on commodities, and further tighten financial conditions.

Oil prices fell again and continue to weaken as the market looks beyond tensions in the Middle East. A move down to around $67 would fill the gap created in early March and complete the unwind of the bearish head-and-shoulders pattern that had previously formed.

For now, the technical setup suggests that the recent geopolitical premium in oil prices continues to fade as supply concerns ease and traders refocus on broader macroeconomic factors.

Finally, gold prices continue to slip, and that weakness may persist, as implied volatility in gold continues to decline. The feverish sentiment that once surrounded gold continues to fade, and with implied volatility still around 26%, there is room for it to fall significantly further. That suggests the decline in gold prices may be far from over. A stronger dollar certainly won’t help matters.

-Mike

Glossary by ChatGPT

• Basis Point (bp) — One one-hundredth of a percentage point, equal to 0.01%.

• Bearish Head-and-Shoulders Pattern — A technical chart formation that often signals a potential trend reversal from bullish to bearish.

• Breakout — A price move above resistance or below support that may signal the start of a new trend.

• Bull Pennant — A continuation chart pattern characterized by a brief consolidation following a strong upward move.

• Diamond Top Pattern — A technical reversal pattern featuring expanding and then contracting price swings that can signal a market peak.

• Financial Conditions — A measure of how easy or difficult it is for businesses and consumers to access capital, influenced by rates, credit spreads, and asset prices.

• Geopolitical Premium — The portion of an asset’s price attributable to political or geopolitical risks rather than underlying fundamentals.

• Implied Volatility — The market’s expectation of future price fluctuations derived from option prices.

• Measured Move — A technical analysis technique used to estimate a price target based on the size of a prior price movement.

• Momentum — The rate at which an asset’s price is changing over time.

• Relative Strength Index (RSI) — A momentum indicator that measures the speed and magnitude of price movements on a scale from 0 to 100.

• Resistance — A price level where selling pressure has historically been strong enough to limit further gains.

• Risk Assets — Investments such as equities, commodities, and high-yield bonds that tend to perform better when investors are willing to take on risk.

• Wedge Pattern — A chart formation marked by converging trendlines that often precedes a breakout in either direction.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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The PCE report will be the key economic release this week and is expected to show headline PCE inflation rising by 0.5% in May, up from 0.4% in April, while the year-over-year rate is projected to increase to 4.0% from 3.8%. Core PCE is expected to rise by 0.3% in May, up from 0.2% in April, with the annual rate increasing to 3.4% from 3.3%.

One area that deserves closer attention is durable goods inflation, which has quietly reaccelerated this year. Durable goods prices in the PCE report are now rising at roughly 3.4% year over year, with the six-month annualized rate running even hotter. While energy and gasoline prices tend to capture most of the headlines, the rebound in durable goods inflation has become a significant driver of core PCE and will be an important component to watch in this week’s report.

Historically, durable goods prices have acted as a deflationary force within the economy. If that trend has truly shifted on a more permanent basis, it would represent a meaningful change in the inflation backdrop. In that scenario, the Fed’s current policy stance may not be restrictive enough to return inflation to its target.

That could be part of the reason why, despite oil prices falling sharply this week, Fed funds futures have not continued to move higher following the Fed meeting. December 2026 Fed funds futures remain above 4%, suggesting the market is still reluctant to price in a more aggressive easing cycle despite the recent decline in energy prices.

Tighter Fed policy and higher interest rates would be bullish for the dollar, and as a result, the dollar has strengthened considerably this year. With the Dollar Index now breaking above resistance around 100.50, there appears to be scope for further gains in the months ahead.

USD/JPY remains one of the most dangerously positioned currency pairs in the FX market, having now returned to its July 2024 high near 161.60. The key question is whether the pair can continue to move higher.

From a technical perspective, the weekly chart shows very little meaningful resistance above the July 2024 highs. There is some resistance around 164, but beyond that, the next notable levels do not appear until roughly 181 and then above 200. In other words, once USD/JPY breaks through 161.60, the chart becomes remarkably thin.

This is precisely the type of setup that should make Japanese government officials increasingly nervous. The higher the USD/JPY rises, the greater the risk of intervention, particularly given the speed at which the pair could advance once it moves into a zone with limited historical resistance.

Finally, this week, reserve balances fell back below the $3 trillion level, driven by a rise in the Treasury General Account (TGA) to around $950 billion following the June 15 tax date. The Treasury is targeting a TGA balance of about $900 billion by month-end, so reserves are likely to increase somewhat in the days ahead, but not by a meaningful amount.

More importantly, Treasury bill paydowns will total $21.8 billion on Tuesday and $12.1 billion on Thursday. After that, these paydowns will quietly fade away next week, and by the first week of July, we will enter a period of heavy bill issuance.

Liquidity flows are set to shift meaningfully in the second half of the year. Based on the latest QRA documents, net bill issuance totaled $272 billion in the January-to-March quarter. In the April-to-June quarter, there were net paydowns of $128 billion. However, in the July-to-September quarter, net bill issuance is expected to reach $348 billion. That means a significant liquidity drain is set to begin shortly.

Bitcoin rallied during the latest round of bill paydowns, climbing back to its 20-day moving average. However, the issuance schedule for the summer months does not appear favorable for Bitcoin or risk assets more broadly.

Glossary by ChatGPT

Core PCE — The Personal Consumption Expenditures price index excluding food and energy, used to measure underlying inflation trends.

Dollar Index (DXY) — An index measuring the value of the U.S. dollar against a basket of major foreign currencies.

Durable Goods Inflation — Price increases in long-lasting consumer goods such as vehicles, appliances, and electronics.

Fed Funds Futures — Futures contracts that reflect market expectations for future Federal Reserve interest rate policy.

PCE Inflation — The Personal Consumption Expenditures price index, the Federal Reserve’s preferred measure of consumer inflation.

Reserve Balances — Deposits held by commercial banks at the Federal Reserve, often used as a measure of banking system liquidity.

Technical Resistance — A price level where an asset has historically encountered selling pressure that may limit further gains.

Treasury General Account (TGA) — The U.S. Treasury’s primary checking account at the Federal Reserve used for government receipts and expenditures.

Treasury Quarterly Refunding Announcement (QRA) — The Treasury Department’s quarterly update outlining borrowing needs and planned debt issuance.

Treasury Bill Issuance — The sale of short-term U.S. government securities used to finance government operations and manage cash balances.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

Micron reports after the close on June 24, and the setup looks a lot like it did back in March — when the stock fell hard in the days after results, even though the numbers were good. What matters most this time isn’t really whether earnings are good or bad. It’s how the options market is positioned going in. And like last quarter, it’s positioned very heavily toward calls.

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Implied volatility is at a two-year high, so both calls and puts are expensive right now. The problem is that once a company reports, that volatility is likely to fall sharply. In March, the 10-day implied vol went from about 100% down to 65% in just a couple of days. When that happens, options premiums decay no matter which way the stock goes — so you’re paying a lot for a call or a put that starts losing value the moment results come out.

On top of that, the biggest level of call gamma — the call wall — sits at $1,200, while the put wall is all the way down at $900. With the stock around $1,135, there’s much less room for the upside than for the downside. And in a positive gamma regime, market makers tend to sell into the stock as it rises toward $1,200, which can pin it right around the call. So even if Micron reports great numbers, it may have a hard time getting much above $1,200 to $1,220 — and anyone who bought calls above there needs a big move just to break even.

That’s why the risk looks skewed. The upside is fairly limited around $1,200, but the downside — once the volatility comes out and all that call positioning starts to unwind — runs toward the zero-gamma area and maybe the put wall. That’s a decline of somewhere between 15% and 20%. None of this says the results are going to be bad. It’s that the way the options are positioned makes it hard for the stock to go up after results and pretty easy for it to fall — a lot like March, except this time the stock has more than doubled and has a lot more to give back.

Learn more about how option positions can drive post-earnings performance

-Mike

Glossary by ChatGPT

• Call Gamma — The rate at which a call option’s delta changes as the underlying stock price moves.

• Call Wall — A strike price with a large concentration of call open interest that can influence price movement and act as resistance.

• Implied Volatility — The market’s expectation of future price volatility reflected in option prices.

• Options Premium — The price paid to buy an option contract.

• Positive Gamma Regime — A market condition in which dealer hedging activity tends to dampen price volatility and stabilize movements.

• Put Wall — A strike price with a large concentration of put open interest that can influence price movement and act as support.

• Zero-Gamma Area — The price level where aggregate dealer gamma exposure transitions between positive and negative, often affecting market behavior.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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The dollar, in the meantime, sits right on resistance at 100.40, and a breakout would likely set it up to rise toward 102.

So, at least at the outset, the bond and FX markets seem to be taking the message from Warsh and the Fed seriously. The message is that no one will hold your hand, and it sounds as if the objective is to let markets trade freely without the Fed’s influence. That would be, for someone like me, really nice. It could very well be the case that macro will once again actually matter. I hope that will be the case.

The gap from Monday on the S&P 500 is now filled. The issue for tomorrow is that it is June OPEX and a long holiday weekend, with markets closed on Friday, which could mean volatility-driven selling is in play. The VIX 1-day did rise and close over 20 today, so I wouldn’t be surprised to see it come down tomorrow and for stocks to regain some of today’s losses.

The question is what Warsh will actually do in the end and whether he is just all talk. The press conference today was revealing; there is no doubt that change is coming, and he seems rather determined to get inflation back to target. If that is real, then markets are in for a big change.

-Mike

Glossary by ChatGPT

• Fed Funds Futures — Futures contracts that reflect market expectations for the future level of the Federal Reserve’s policy interest rate.

• FX Markets — Foreign exchange markets where currencies are traded against one another.

• Macro — A market approach focused on broad economic trends such as growth, inflation, interest rates, and monetary policy.

• OPEX — Options expiration, the date when listed options contracts expire and can contribute to increased market volatility.

• Policy U-turn — A significant reversal in expected or actual monetary or fiscal policy direction.

• S&P 500 — A benchmark equity index tracking 500 large-cap U.S. companies.

• VIX — The CBOE Volatility Index, commonly used as a measure of expected stock market volatility.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

Tomorrow is the big day, with the Fed meeting and Kevin Warsh’s first major press conference as chair. One thing that seems likely is that Warsh will be very different from the Bernanke-Yellen-Powell lineage. Recall that Warsh resigned from the Fed before the completion of his term and was openly critical of the Fed’s use of quantitative easing. While views can evolve over time, given the mixed legacy of QE and some of his comments during the Senate Banking Committee hearings, it would not be surprising if Warsh remains skeptical of large-scale asset purchases. More broadly, he does not appear to support maintaining an oversized balance sheet.

The FOMC press conference should help clarify several important issues tomorrow. One would think risk assets would not respond well to a more hawkish Fed, particularly one less willing to rely on QE or balance-sheet expansion. The first policy initiative that could potentially be eliminated, perhaps as soon as tomorrow, is the Reserve Management Purchases program that Powell introduced in December. At this point, the Fed is purchasing only about $10 billion per month in Treasury bills, and it would seem reasonable to end the program if Warsh is serious about moving away from the era of ever-expanding balance sheets.

Speaking of the balance sheet, yesterday’s tax day pushed the Treasury General Account to roughly $980 billion, which should have reduced reserve balances to around $2.9 trillion. That is certainly not a disaster, but it does place reserves closer to the lower end of the range where overnight funding rates have previously come under pressure.

Meanwhile, semiconductors were hit hard, with Micron (MU) falling more than 6%. Options activity was relatively subdued compared with recent days. If options volume continues to fade, the stock could struggle to maintain its recently elevated levels.

One reason may be that SpaceX has become the market’s new shiny object now that options have been listed. If investors begin shifting their focus toward SpaceX, semiconductor stocks could face additional headwinds.

-Mike

Glossary by ChatGPT

Balance Sheet — The collection of assets and liabilities held by the Federal Reserve, including Treasury and mortgage-backed securities.

Federal Open Market Committee (FOMC) — The Federal Reserve committee responsible for setting monetary policy and interest rates.

Hawkish — A monetary policy stance that favors tighter financial conditions to control inflation.

Options Activity — Trading volume and positioning in options contracts that can influence stock price dynamics.

Quantitative Easing (QE) — A monetary policy tool in which the Federal Reserve purchases securities to inject liquidity into the financial system.

Reserve Balances — Deposits held by commercial banks at the Federal Reserve that support banking system liquidity.

Reserve Management Purchases (RMP) — Treasury bill purchases conducted by the Federal Reserve to maintain adequate reserve levels in the banking system.

Risk Assets — Investments such as stocks and corporate bonds that generally carry higher return potential and greater volatility.

Treasury Bills (T-Bills) — Short-term U.S. government securities with maturities of one year or less.

Treasury General Account (TGA) — The U.S. Treasury Department’s primary operating account held at the Federal Reserve.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

The VIX 1-Day, which closed around 19 on Friday, traded down to 13.5 today, while the VIX Index fell to 16. That was really the story of the day. Volatility has largely reset, and with much of that repricing now behind us, I would think the biggest gains in the index are likely already in the rearview mirror.

From here, the market may shift into a more grinding, range-bound move heading into OPEX on Thursday, with volatility-related tailwinds becoming less supportive after today’s sharp decline in implied volatility.

Micron rose about 10% on the day, but more importantly, the company is set to report earnings on June 24. Seven-day implied volatility is now above 120%, an exceptionally high level that reflects elevated expectations for the report.

The stock is also heavily skewed toward call positioning, similar to what has been seen in Broadcom and other AI-related names. That suggests investors continue to lean aggressively bullish heading into earnings, which can create a setup where expectations become increasingly difficult to exceed.

The bond market saw far less excitement. In fact, the 30-year Treasury yield finished the day nearly 1 basis point higher at 4.98%. That may not sound like much, but the yield traded as low as 4.92% intraday, making for a fairly significant move over the course of the session.

Tonight brings the BOJ rate decision, and the market has largely priced in a rate hike from the central bank. Meanwhile, USD/JPY is on the verge of breaking above 160.

The BOJ will need to deliver a hawkish enough message to stabilize and strengthen the yen. Otherwise, the currency risks pushing above the highs last seen in July 2024. At this point, a rate hike alone may not be enough, as markets will likely focus more on the path of future policy tightening and whether the BOJ signals additional rate increases later this year.

The gold rally stalled at the 10-day exponential moving average, which has acted as resistance since mid-May. A failure to break above that moving average would likely lead to even lower gold prices.

That’s all

-Mike

Glossary by ChatGPT

• BOJ (Bank of Japan) — Japan’s central bank, responsible for setting monetary policy and interest rates.

• Call Positioning — Investor exposure to call options that benefit from rising stock prices.

• Exponential Moving Average (EMA) — A moving average that places greater weight on more recent price data.

• Implied Volatility — The market’s forecast of a security’s future price fluctuations based on options pricing.

• OPEX (Options Expiration) — The date on which listed options contracts expire.

• Treasury Yield — The annual return earned by holding a U.S. Treasury security.

• USD/JPY — The foreign exchange rate representing the value of the U.S. dollar relative to the Japanese yen.

• VIX Index — A measure of expected stock market volatility derived from S&P 500 options prices.

• VIX 1-Day — A short-term volatility measure estimating expected market volatility over the next trading day.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.