Still at a crossroads, resolution coming soon

Paid subscriber analysis

What was supposed to have happened last week (following the hotter inflation prints) happened instead this week. Coincidentally (or not!) exactly at Friday Opex (monthly options expiry).

One thing’s certain, we didn’t get the blow-off top we talked about:

But it’s also not quite a correction. Yet.

We saw a new all-time high this week, but it was not sustained. We are still in a sideways, jumpy trading regime.

However, this may change in the coming few weeks. Why? Option flows!

In our post last week we talked about the impact of February seasonality, coming into the window of weakness after the February Opex, which can extend into March Opex (a big quarterly options expiry date). Meaning that the set up for the next few weeks is particularly vulnerable to bad news.

To repeat the point made last Saturday:

…right now, as we are entering in a period of seasonal instability, which means that IF there is a negative catalyst, the reaction could be strong to the downside. It doesn’t mean we automatically get a sell, but if we get one, it could be strong.

Which brings us back to the catalysts. Keep your eyes open for things like NVDA earnings.

Today, we will examine our two scenarios from last week - both still very much in play - but from the perspective of option flows and possible catalysts.

Window of weakness

The obvious catalyst for next week are NVDA earnings, to be reported on Wed, after close. I have no idea on whether NVDA will beat. It probably will, but from the last three times, this meant little, as the beat was not “strong enough”. So the stock sold off.

What we can expect is another outsized impact. Not just because of NVDA's relative importance to the market, but also because its earnings coincide with a seasonally vulnerable period.