Big Day For Markets On February 10 As Inflation Looms
Growth, Long/Short Equity, Momentum, Macro
Seeking Alpha Analyst Since 2014
I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.
I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels.
February 9, 2021
STOCKS – CSCO, ROKU, ZOOM
MACRO – SPY, VIX, RINF
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- Long-Term Idea List
- Midday: Something May Be Ready To Break
- Cisco Could See Lower Prices After Results
- Morning Note: Will Tomorrow Be The Turning Point?
- Stocks I Am Monitoring For Long-Term Investments
Stocks were flat today, with the S&P 500 falling by around 11 bps. Meanwhile, the VIX finished the day trading flat at 21.6. It was a fairly uneventful day of trading on the index level, with the S&P 500 held in place by a VIX that would not move. For those expecting the VIX to melt, you may have to wait a while longer; I don't see it happening currently, which is likely to keep a lid on the S&P 500 pushing higher from here. It will take a move lower in the S&P 500 to lift the VIX for the index to get the required energy to lift the S&P 500 to higher prices.
S&P 500 (SPY)
The S&P 500 closed the day right at the tip of the triangle today. It is getting really tight, and with the VIX where it is, it seems the only way for the S&P 500 to rise is for volatility to breakdown, which doesn't seem to happen. Again, the expectation is for the S&P 500 to decline back to the trend line at 3780.
Tomorrow could be an important day for bond yields, with the CPI report coming at 8:30. A hotter than expected reading could quickly start to push bond yields. But more important is the direction TIPs will decide to go. For the most part, the 10-year TIPS have seen their yields trending sideways, while Treasury yields have diverged higher.
This has caused inflation expectations to surge. We care about inflation expectations because the S&P 500 has been chasing inflation expectations for more than a year now, and where inflation expectations go, stocks are likely to follow.
The problem here is that if TIPS starts to trade up, and bond yields trade up, and the spread begins to contract, that could negatively impact equity prices overall. I talked about this a few weeks back in a video. ( First Two-weeks are free to try RTM - Yields And Inflation Rate May Be Predicting Lower Equity Markets)
Cisco is trading lower in the after-hours, after the company reported better than expected top and bottom results, but basically inline guidance. Not good enough because the stock ran up in anticipation of something good, and as usual, Cisco's guidance didn't live up to expectations. So the stock is trading lower to around $45.85. I had noted today that was a lot of put activity in the name leading up to results, and $45.85 was likely to be a support level. ( For readers of RTM - First two-weeks free to try - Cisco Could See Lower Prices After Results)
Roku was up pretty big today, and it looked like a traditional gamma squeeze taking place today. Option volume exploded, and based on what I saw, most of the options trading was for expiration this week. I'm not sure if this continues tomorrow or not, but I guess we will see.
I still happen to think that Zoom is going to fill that gap up to $480. The RSI trend is positive, and the stock has successfully broken free of the rising wedge.
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