Market 10/18: SPY finds bottom at 430 on VIX OpEx day

Market pulls back as forecasted on VIX OpEx day

However, noteworthy is that from yesterday and through today, the amount of negative delta across the market still keeps SPY's call wall at 440 while SPX's call wall moves up to 4450. Currently, 440 is a key important level for SPY in this week's October OpEx with high likelihood SPY will pull back here and not break above 440 at least until end of OpEx. The sentiment and actions of investors and traders in the market from yesterday and today largely reinforce the above assessment.
SPY's resistance at 440 also coincides with VIX options expiration tomorrow with a large amount of 15P and 20C expiring. After tomorrow's VIX OpEx, market volatility will gradually increase strongly heading towards Friday's OpEx, creating additional downside risk with the 430 put wall level important level of SPY.

US stock market opens today's trading session unpleasantly as de-risking activity occurs across the market since end of yesterday's session. Market tries to rally for 1 hour after open but right when VIX options expire at 9:30ET, volatility spikes amplifying the impact of existing negative gamma flow on the market, pulling entire indices below volatility trigger point (4350~SPX) and creating temporary panic.

VIX OpEx removes support at 15P floor and upper resistance at 20C which rallied strongly 10% intraday, nearly touching panic level 20 right before noon as investors await results from 20Y bond auction. Luckily for the market, 13B 20Y receives bids at average 5.245%, lower than expected 5.257%, biggest tail since June. This recovery also coincides with important 430 put wall level of SPY mentioned by Viet Hustler in yesterday's analysis.

Overall, with current internals and weekly OpEx options position, high likelihood market has found temporary bottom and defined range trade 430-440 from now until Friday. However below 4350, volatility across the market will remain high with VIX>20 leading to panic. Above 4350, market temporarily maintains gamma neutral and will go sideways until end of Friday.

Record mortgage rates drive down home purchase loan demand sharply

Average rate in contracts for 30-year home purchase loans has risen to 7.70%, highest since 2000.

Rising rates crush consumer affordability. Mortgage demand drops to lowest since 1995.

To buy a median-priced home, buyers need minimum income of 115,000 USD. This is the all-time record high and over 50% higher than at the start of the pandemic.

New housing starts recover in September

Despite surging mortgage rates, number of new housing starts recovered slightly after significant drop, up 7% from previous month.

Building permits for multifamily apartments drop most since November 2022, while single-family permits rise for 9 consecutive months.

In September, building permits for multifamily apartments fell -14% to lowest since October 2020, while single-family homes rose to highest since May 2020.

Number of rental apartments starting construction also rebounded from 3-year low.

According to National Association of Home Builders (NAHB) data, building permits will continue declining due to weak consumer sentiment.

However, construction jobs remain at peak levels in over a decade.

10-year bond yield highest since 2007

10-year Treasury yield hits 4.9%, highest since July 2007. Rate cuts not expected until July 2024.

10-year Treasury yield officially surpasses median cap rate since 2008. In other words, real estate investment yields less than investing in 10-year bonds.

Broad oil inventory draw pushes crude prices hot

According to last night's API report, oil inventories drew broadly:

Crude: -4.38 million
Cushing: -1 million
Gasoline: -1.58 million
Distillates: -612,000

Biden administration pauses adding oil to Strategic Petroleum Reserve (SPR) for 6 weeks.

Cushing oil stocks near depletion, lowest since October 2014.

Crude production holds at record high 13.2 million bpd, despite declining rig count.

Brent crude surges, trading around 92.3 USD/bbl after Iran calls for oil embargo against Israel.

Meanwhile, oil shipping costs spike suddenly since Israel-Hamas conflict. Mediterranean shipping costs up over 100%.

ASML ER: Concerns over semiconductor chip industry decline

Sales increased 15% year-over-year, reaching 6.7 billion Euro
Net profit: 1.89 billion euro (expected 1.8 billion euro).
Net bookings reached 2.6 billion Euro, down 42% from previous quarter. Of which 0.5 billion Euro from EUV technology (Extreme Ultraviolet Lithography).
EPS reached €4.81.

ASML CEO states some current restrictions:

Semiconductor industry is currently in the late stage of the cycle.
US imposes additional restrictions on AI chip exports to China.

UAL reports profit increase: Stock drops due to war pressure

Total revenue: 14.48 billion USD (expected 14.44 billion USD), up 12.5% year-over-year.
Net income: 1.1 billion USD
EPS Adjusted: $3.65 (expected $3.35).

UAL stock drops more than 8% at open due to concerns over Middle East conflict and high material cost pressure (expected to rise 11% through December).