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The week of October 31 promises to be difficult. There’s a ton of economic and earnings data and an FOMC and BOE meeting. Tuesday is when the fun begins with JOLTS and ISM data. Monday’s ISM data will be tricky as it is expected to come in at 50, which is the level that separates a contracting or expanding sector. But I always like to look at what that equates to based on real GDP growth, which is noted in the press release itself. This is a better indication of the economy. Then read the press release!

ADP jobs data is Wednesday morning and the FOMC meeting is in the afternoon. On Thursday, the ISM services index is expected to come in at 55.1, down from 56.7 last month.

Then on Friday we got the BLS jobs report, and forecasts call for 190,000 jobs to be created in October and an unemployment rate of 3.6%, down from 3.5% last month.

With all this data and a November 10th CPI report, I think the Fed will keep its options open (read more here) and stick to the script for the Jackson Hole and September meeting. If the Fed says it plans to slow the pace of rate hikes and the jobs report and CPI are hotter than expected, then they look stupid to tell the market they see lower rate hikes and then have to roll back. Best to let the market guess.

The Bank of England will hold its policy meeting on November 3, which is also essential. Many people see what the BOE did in October as a policy shift when it stepped in to support the bond market. This was not the case, they are still planning to start selling gilts, and I think it will be made clear to the market on Thursday that there has been no change in policy.

By the way, the Reserve Bank of Australia was one of the first banks to cut the pace of the hikes, and guess what. Inflation came in warmer than expected last week at 7.3% against estimates of 7.1% and jumped from last month’s reading of 6.9% and a new cycle high. Now what?

Furthermore, it is not entirely clear whether inflation in the United States has peaked yet. Archer Daniels Midland, ADM’s (not AMD’s) stock price seems to think food prices could rise and headline inflation. The stock is about to reach a new high, and guess what? He has followed the IPC for the past five years.

S&P 500 (SPY)

However, I think the stock market party can go on for a bit longer. A huge amount of cash is flowing into stocks in the early days of November. Last week nearly $24 billion was invested in stocks, and next week systematic feeds will be back, meaning CTAs will work their magic to drive stocks higher like they did in August, with over $10 billion to buy.

At this point, the S&P 500 broke free, and with CTAs in overdrive to cover shorts and such, I could see the S&P 500 running around 3,950-4,000 and hitting the top of the widening wedge. How far the S&P 500 will go depends on the options market and how much breathing room it gives the S&P 500. On Friday, 3,900 was resistance because that was where the greatest concentration of gamma was. calls, and this is where options traders started selling their calls, keeping a lid on the market. So from an options perspective you will need more call buys to increase that level of call concentration to say 4,000. If that happens then there is plenty of room for the market to keep coming together.

However, the higher the market goes towards the FOMC meeting, the more unlikely it is that Powell will give the stock market what it wants to hear. Rising stock prices are helping to ease financial conditions, and the one thing Powell doesn’t want is for financial conditions to ease. Also, if the market rises, the VIX will likely continue to melt to around 23 ahead of Powell. Additionally, with the VVIX trading below 80, it appears the market is not sufficiently hedged for a hawkish Powell.

Also, at this point, the spread between the spot VIX and the generic 3-month VIX futures is -2 and still needs to reach around -5 or less to signal a change in trend in the equity market. You get a market tearing up at the FOMC meeting, and after the FOMC meeting, due to the continued melting of the VIX, you could see that gap widen to -5 points by Thursday. It’s been a pretty good indicator of the market since August 2021. Add to that a better than expected work impression, and the rally will be over by Friday.

PayPal (PYPL)

PayPal will release the results this week, and at least the chart looks pretty good. The RSI has been rising steadily for quite some time, and it almost looks like a bull flag has formed. Positive earnings commentary could lead to a breakout in the stock and technical resistance at $109.

Apple (AAPL)

Keep an eye on Apple; the big upside move appears to have been tied to the meltdown in implied volatility. I’ve owned the stock for a long time, and their advice on Thursday was perhaps the most vague advice I’ve heard from them in a long time. The results weren’t disastrous though, and it caused a massive drop in implied volatility, which means selling put options and covering short.

Caterpillar (CAT)

Caterpillar is one of the reasons the Dow has outperformed recently. Look at the movement of this stock since it released results. Just look at the RSI and how overbought it is, but that doesn’t mean it can’t close that gap to $225 before pulling back.


But what’s even more surprising is how IBM leads the market higher. Yes, I said IBM. I hate to say it, but IBM also looks like a big, short-coverage event. Watch the VIX on IBM drop from 44 to 23 in a straight line.

Good luck this week; It’s gonna be fun. Have a safe Halloween!


Charts used with permission from Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a Fellow and Investment Advisor with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of directors of any related company that issued these shares. All opinions and analyzes presented by Michael Kramer in this analysis or market report are solely the opinions of Michael Kramer. Readers should not treat any opinions, views or predictions expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell any particular security or follow any particular strategy. Michael Kramer’s analyzes are based on independent information and research which he believes to be reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and should not be relied upon as such. . Michael Kramer has no obligation to update or correct the information presented in his analyses. Mr. Kramer’s statements, advice and opinions are subject to change without notice. Past performance does not represent future results. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss by following any investment strategy or commentary presented in this analysis. The strategies or investments discussed may fluctuate in price or value. The investments or strategies mentioned in this review may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as an appropriate recommendation for you. You must make an independent decision regarding the investments or strategies in this analysis. Upon request, the advisor will provide a list of all referrals made within the last twelve months. Before acting on the information contained in this analysis, you should consider whether it is appropriate for your situation and strongly consider seeking advice from your own financial or investment adviser in determining the suitability of any investment.

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