Market 12/04: Tech pulls market back, money flow continues to small-caps

SPX retreats from call wall 4600, small caps continue to shine

After ending the week right at the important level 4600 on Friday, big tech cools off and pulls the entire S&P500 block down this morning before finding support at volatility trigger level 4550. Despite the light pullback, the market still maintains behavior as in a positive gamma environment with mean reversion occurring quite quickly this morning.

SPX gamma levels are generally maintained as before with most call build up still only at 4600, showing that the gamma pin structure 4550-4600 for SPX remains firmly in place at the current time.

IWM, on the other hand, pushes strongly through call wall 185 with mostly organic buy volume. However, with IWM's call wall not showing signs of rolling higher, IWM is currently considered in the “overbought” zone. However, as mentioned in Friday's newsletter, IWM's options positions are generally very “loose” making gamma's influence on the index not as strong as on SPX.

Gold price, bitcoin explode despite Powell's warning

Last Friday, despite Fed Chairman Powell emphasizing “it's too early to think about cutting interest rates”the market still expects Fed to cut interest rates from March 2024.

Related articles:
- Market on 12/01: summary of Powell's statements.
- What is the basis for Federal Reserve's interest rate decisions?

Expectations of lower interest rates push gold price surging to 2,140 USD - all-time high.

Bitcoin price also hits 40,000 USD for the first time since May 2022.

Money flow into crypto market highest in 2 years.

The market interpreting Powell's message as dovish may further lead retail investors to rush into this low-liquidity asset class.

Most bond yields rise across the board:

10-year bond yield rises to 4.259%.
2-year bond yield rises to 4.631%.

Stock market also continues to heat up after interest rate cut expectations

Dow Jones Industrial Average also up 5 consecutive weeks to highest level since October 2021.

63% of S&P 500 stocks are also trading above the most recent 200-day moving average (MA200) - highest ratio since 08/07.

Hot short-term market growth causes previous short sellers to lose 80 billion USD in November.

October factory orders drop the most since Covid

After strong increase in September, factory orders fell -3.6% MoM - largest drop since Covid period => Indicates clear decrease in goods demand.

Core factory orders (excluding transportation services orders) also continue 8-month decline streak, down to -2.2% YoY.

Government defense spending seems still growing and “supporting” part of economic growth:

Defense orders surge: +24.7% MoM.
While non-defense goods orders decline: -15.8% MoM.

Some other news:

Spotify lays off an additional 17% of employees to cut costs. The company has lost ~500 million USD this year.
- Meanwhile, last month Citigroup also announced layoffs of 10000 employees to cut costs => The layoff storm is gradually emerging.

Evergrande's hearing has been unexpectedly postponed to the end of January.
- Some information about the previous Evergrande lawsuit: here.
Uber stock rises nearly 5% after being included in the S&P 500.

US warships and many commercial ships attacked in the Red Sea.
- This incident is not the first since the conflict between Israel and Hamas erupted on 10/07.