Last Black-Friday before Tariffs

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Our View

The Fed can’t lower and Trump wants to add 25% tariffs. How’s that going to work, make enemies of all our trading partners and jack up the cost of food? If war does break out, Russia will attack grain supply routes and commodities will explode higher. I think even the people that voted for him knew he would pull some crazy shit and so far so bad. I know there needs to be change but I think negotiations are a far better path but we all know MrBig wants to stir the pot.

The ES is up 0.3%, going into Friday’s shortened, post-holiday trading session on Wall Street. The ES is already up 5% in November, on course for its best month since February as investors plowed $141 billion into US equities, the heaviest inflows in a 4-week period on record, according to EPFR Global data. A handful of tech titans have led 26% year-to-date gains in US stocks on the prospect of Federal Reserve rate cuts while the American economy continues to chalk up growth.

MiM and Daily Recap

The ES traded 6047.00 on Globex and opened Wednesday at 6033.00 After the open, the ES fell to 6027.5075 at 9:32 as we headed into the release of the PCE numbers at 10 am ET. ES rallied 10.75 points up to 6036.75, sold off 9.50 points down to 6027.50, rallied up to a lower high at 6037.00, and then sold off 26.50 points down to 6010.50 after release release.

The PCE reading rose 0.3% for the prior month/month during October, in line with Wall Street’s expectations for 0.3%, sending the ES into a small rally 9.25 points up to 6019.25 at 11:44 and then it sold off 19.5 points down to 6000.25 at 12:16. After the low, the ES  rallied 18.75 points up to 6019.00, pulled back 7 points down to 6012.00 at 2:40, rallied 7 points up to 6019.00 and then dropped 11 points down to 6007.25 before rallying again and trading 6016.25 as the 3:50 imbalance showed $1.45 billion to buy. On the 4:00 cash close, the ES traded 6015.75 and settled at 6015.00, up 23.25  points or +0.34% on the day. Total volume dropped down to 1.15 million contracts traded.

During Thanksgiving’s abbreviated session, the ES traded up to 6032.25 at 11:16 am and settled at 6029.75 and opened Thursday night’s Globex session at 6027.25, made a lower high at 6030.75 and fell 12.74 points down 6018.00 at 7:51 pm after Putin did a massive missile and drone strike on Ukraine. After the low, the ES rallied back up to 6033.50. The abbreviated day gained 15 points, up 0.23%. Just 100K contracts trade overall.

In the end, the PCE release again showed the Fed being behind the eight-ball in terms of the ES’s overall tone.

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Founder’s Note:

Futures are +30bps heading in to todays shortened session.

We remain bullish on equities if the SPX holds >6,000, with an overhead target of 6,050. Vol remains at recent lows, as shown by the VIX <14 – there isnt much perceived risk out there.

The latest GEX models show that if the SPX can slide >=6,050, it is going to be met with MASSIVE positive gamma support. Further, that support likely doesn’t dissolve until the end of December, suggesting that bears would need something quite legitimate to push equities lower. This large positive gamma should lean on realized volatility, which legitimizes fresh lows in implied volatility. Seems safe, but boring.

There remains a large performance dispersion across indices, with the “exciting” Dow and small caps sharply outperforming tech.

This dispersion exists in volatility levels, too, with IWM’s current IV Rank at 20% vs DIA 12% and just 2 %(!) for SPY, and 4% for QQQ.

This highlights a critical juncture here for SPX at 6,000. While its hard to think of a reason for a sustained vol pop in SPY/QQQ, we find it really hard to want to short an IV rank of 2, as just a small new risk trigger could invoke an asymmetric vol response if the SPX is <=6,000. However, >=6,050, we’d estimate a “risk off” trigger would have to be quite a bit larger due to overcome the vol-crushing positive gamma.

Additionally, assuming equities maintain their bullish stance into year end, its becoming clear that the DIA/IWM may continue outperformance, as suggested in their higher IV’s. There is a “macro” idea behind this – possibly that DIA/IWM are more “pro Trump” but more concrete is the idea that DIA & IWM do not have giant, systematic all selling complexes a la S&P500 and NDX. Those giant SPX/NDX call selling funds are the suppliers of this huge positive gamma. That huge positive gamma should throttle volatility (movement up or down) – turning bull moves into relative grinds.

With that, we note that our key way to express equity upside out of NVDA earnings was SMH & QQQ, but those assets have been duds. Maybe it is due the tariff threats, or just uninspiring AI earnings – the narrative is not important. What is more critical here is to recognize where the options are bid – in this case IWM & DIA.

On this case we present our beta GEX for IWM, which shows dealers in a negative gamma position – suggesting dealer flows should expand volatility. That’s great if we continue to rally, and implies there may be some interesting spread trades at hand (shorting SPY + long IWM).

This is just a snippet of daily reports you get from the SpotGamma team. Check out their product using the link below.

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!!