Liquidity Drain Sinks Stocks on February 12
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Due to the mid-winter recess, this free evening commentary will not be published the week of February 16, and will return on February 22. However, I will continue to provide daily updates in the paid membership area to the best of my ability. At least the market is closed on Monday.
Stocks fell sharply today, with the S&P 500 dropping nearly 1.6% and the NASDAQ 100 declining more than 2%. Today was also a settlement day, with $22 billion settling, so the sell-off wasn’t particularly surprising. Since the end of October, settlement days have been weak more often than not.
Next week may not be any better, with $65 billion due to settle on Tuesday, and another $24 billion on Thursday.
Suddenly, social media has decided that dispersion in the index is a problem, as stocks are starting to break down and post large moves. It’s a bit of a “no kidding” moment — where has everyone been for the past six months? I guess people are just now waking up.
The Dispersion Index has been trading near the upper end of its historical range for several weeks, so this is hardly a new development.
I don’t want to point out the obvious, but Walmart is reporting results next, and this whole little spot-up, vol-up stuff is probably going to end in a not-so-pleasant way.
Last year, when this same thing happened, the stock fell 12.5%.
With the VIX 1-Day closing at 21.5, it wouldn’t be surprising to see the S&P 500 rally by around 1%. At these elevated IV levels, a sharp downside move in the SPX would be somewhat unexpected.
In addition, tomorrow is Friday and the start of a holiday weekend, which is often a period when volatility sellers step in, potentially adding support to the market.
Anyway, I will try to post something on Saturday. If not, have a good week.
-Mike
Glossary by ChatGPT
Dispersion Index: A measure of the variation in performance among individual stocks within an index, often associated with higher single-stock volatility.
Implied Volatility (IV): The market’s forecast of a security’s potential price movement derived from options pricing.
NASDAQ 100: A stock market index composed of 100 of the largest non-financial companies listed on the Nasdaq exchange.
S&P 500: A broad U.S. equity index tracking 500 large-cap publicly traded companies.
Settlement Day: The date when a securities transaction is finalized and cash and securities are officially exchanged.
SPX: The ticker symbol for options based on the S&P 500 Index.
VIX 1-Day: A short-term volatility index measuring the market’s expectation of S&P 500 volatility over the next trading day.
Volatility Seller: A market participant who sells options or volatility-based products, typically aiming to benefit from declining implied 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.
right on as always! Thanks!