Bull/Bear Case into Year-end

BY BILL GRIFFO 

November 18, 2023 

Hey There Income Hunters,

Now that NOV17 monthly option expiration (OpEx) has passed, the market is at a major cross roads …

You see, the monthly expiration cycle resets option dealer books and removes the hundreds of billions in delta notional that had built up since Oct20 …

In the end the SPY 450 strike by far held the largest put/call open interest that acted as a magnate and pinned the overall market over the past few days and was ultimately where the market closed out the cycle. 

Now, the market resets without any major strikes to pin the market down … This means volatility is now free to set the market on a new path …

Today, I’ll make a case for the short and long-term flows we are most likely to see in the weeks ahead.

The OpEx Cycle

Now that the NOV17 OpEx is complete, the market will have to absorb the impact of option dealer selling of their delta-hedged long stock positions. 

It is this hedging activity that makes option positioning analysis such a key component of trading strategy in today’s option dominant flow environment.

So, next week the closeout of long stock hedges should ignite a pullback … This pullback may present traders with a great buying opportunity or it could be the start of a major reversal back down …

As you can see above the Dec15 OpEx is also dominated by call open interest, which initially will continue to provide a tailwind for bulls …

However, we may be heading into a period where bad economic news will shift from being a positive force for stocks to a negative one as the market narrative shifts to imminent recession. 

As the Fed likes to say we are entering a period where policy is “Data Dependent” …

For now, this policy transition period is positive for risk assets … However, the clock is ticking on a shift to higher bankruptcies, larger delinquencies of debt payments and higher unemployment.

That shift will trigger a new leg down in stocks that will test the Fed’s patience on their higher rates for longer mantra and will ultimately force their hand back to QE once the markets breakdown.

The odds still favor a Santa Claus rally as the Powell (FED) and Yellen (Treasury) team continue to reach into their bag of tricks and kick the can (Recession) down the road …

So in the days and weeks a head I see a dip to at least 4450, then a renewed rally that could breach SPX 4600 …

However, make no mistake that team “Powellen” will ultimately kick the can off a cliff …  They are playing a game of chicken they can not win … But you can!…  Here is how …

Join my Power Income Trader and Win The Week subscribers to gain access to exclusive alerts and many trade ideas sent out weekly that capitalize on policy mistakes and gaining an edge based on option positioning …

You will also participate in live sessions on option positioning analysis classes and the macro forces to focus on that are driving global markets …

These trade alerts and live sessions are guaranteed to increase your probability of success … Call our Customer Care team at 888-872-3307 NOW for a special deal.

Live and Trade With Passion My Friends,

Bill Griffo