They No Longer Support Me

What supported the stock market last week…No longer.

There is much more than stocks and bonds. What most investors forget to consider is the derivatives market. In particular the options market. Options are easy to access and widely used by all types of investors. Over the years options have gone from a monthly or quarterly expiration to today or we have zero days to expiration options. We drove the stock market last week. Where is the zero days to expiration options. You could consider these to be a bit manipulative when it comes to the true fundamentals of a stock or index. What we saw last week would’ve made you think that we had hit bottom, the US economics were improving and we were headed back into a pole market. Unfortunately that is not true. We’re actually headed in the opposite direction.

What has changed this week?

• Zero days to expiration SPY Call Option Buying no longer is in the Top 10 Board of Most Active Options.

• VIX Monthly Options expired and front-month VIX exploded to the upside.

• Yield Curve (10s minus 2s) is hitting new lows for this week at a bone-chilling -71 basis points signaling DEEP Recession

*Source: Hedgeye Early Look

Options create support by forcing Market Makers to hedge or do the opposite of the purchaser or seller. What we saw last week is an example of this.

Position Update