Eurozone 10.7% Inflation Record Highs
Greed pulls back some and crypto miners go from bad to worst
Contents
Today: Eurozone Inflation surprised to the upside and only energy closed positive, Q3 2022 earnings growth rate lowest since Q3 2020
Crypto: Tether Bank-Fraud story is concerning
Tomorrow & Options Flow: We closed above max pain, so still leaning slightly bullish. Gamma Exposure (GEX) is showing lower highs now.
Insightful Tweets: Big risk on the horizon as the Swiss National Bank saw one of the biggest losses in over a century!
Today
Eurozone CPI wasn’t good news today as they hit a new high of 10.7%
Energy was the biggest driver of Euro inflation—this looks like inflation is here to stay until energy transformation happens (which will take years)
The Fear & Greed Index pulled back a bit from 61 → 58. A move to neutral aka “unsure” usually means the rally is consolidating for the next big move up or down.
And we can see why as there were slightly more decliners than advancers at close today. Facebook META 0.00%↑ fell 5% and made new 52 week lows.
Ten of the eleven S&P sectors ended in the red with greater-than-1% slides in Communication Services and Info Tech. Only the energy sector XLE 0.00%↑ closed positive today.
Q3 2022 earnings growth rate is just +2.2%, the lowest since Q3 2020’s
We halfway through earnings season, the data says we are in a downtrend and the analysis below already calls it an “earnings recession” if you do not count the energy sector.
I’m Bullish on the Banking Sector: as the Fed announces more rate increases and higher terminal rate, we are getting back to historically normal rates which is bullish assuming we don’t hit a recession with high loan losses.
Another bullish sign is that credit card companies to banks are preparing for increases in loan losses, so they are anticipating it which tells me the management teams will navigate things better than expected.
Yields also went higher today: which tell me the bond market doesn’t really believe the Fed will be less hawish.
In addition, the DXY moved higher as well and this rally has basically been an inverse of the US dollar index—so what happens when the Fed hikes further and…the DXY rallies again?
Crypto
Although Bitcoin is holding $20k, we got a lot of bad news and price action in the crypto world today. Coinbase COIN 0.00%↑ saw another big drop today of almost -9%.
Argo Blockchain ARBK 0.00%↑ , another miner collapses after it fails to secure financing. The miners are going from bad to worst! The bankruptcies continue in crypto land.
The most concerning is Tether, the article below is a must read 👇 And Tether is one I have pointed out a long time ago where I do not believe their assets / collateral are all what they say it’s worth. If Tether unravels it can cause financial contagion and would definitely send Bitcoin down to at least $16k and lower.
Tomorrow & Options Flow
My thoughts this week is the Fed will continue being hawkish and more blunt to the market come FOMC, we will sell off and bounce around 375. SPY 360 or lower will be a clear buy opportunity because the market is simply just going to rotate and move money into Financials, Healthcare, etc. sectors that are performing and generating significant cash flow in this higher interest rate inflationary environment and sell off interest rate sensitive sectors such as housing, tech, etc.
If the Fed is dovish and signals a slow down and “pivots”, then SPY will pop 10% to SPY 420+ and then pullback/consolidate there.
Tues, Nov 1:
PMI and ISM manufacturing indexes should be bad—which the market will interpret as the Fed can be more “dovish”. Reminder that the market is priced as if the Fed is going to “pivot” and SLOWDOWN rate hikes. Per my weekend analysis, that ain’t happening and the market has to reprice a focused & hawkish Fed.
Job openings should still be robust, with around 1.5+ jobs for every job seeker—this gives the Fed more wiggle room to stay the hawkish course
Construction spending should be decent because Caterpillar CAT 0.00%↑ had great earnings growing +15% YoY! This is why their rallied so much the past 2 weeks.
Motor vehicle sales should show a lot more weakness so it can cause the auto manufacturers to pull back some even though GM GM 0.00%↑ had pretty strong earnings and guidance.
Today’s Close
Today closed above SPX max pain of 3,850. And now calls are leading puts 9 to 7, greed is back but is now the time to get greedy and bull up further into this rally? 🤔
Gamma Exposure (GEX) dropped from $1.67B to $1.34B
Look at gamma exposure since the Oct lows—the correlation to the market is pretty tight. For us to go higher, we need to move into higher positive gamma levels which would be over $2B GEX.
Nov 1st SPXW options max pain is 3,815
Nov 2nd SPXW options max pain is 3,805 on the Fed meeting day
Nov 2nd SPY options max pain is 377
SPXW options activity by expiry
What’s also interesting is TLT 0.00%↑ options are bullish—traders are betting TLT will rise 14% to 110 by Fri, Nov 4th and the 2nd highest open interest are calls that bet 20% to 116 by this Fri.
VVIX and VIX were both slightly green today which tells me some hedging leading up to FOMC.
Insightful tweets
I talked about currency risks in a prior Substack, but this is concerning—that’s a massive and historic loss! Which other banking or non-banking entity has losses due to the currency volatility we are seeing across global markets?
Distressed debt is trending back up but nothing has broken yet
If this happens it will trigger a rally as it improves net liquidity conditions
Global earnings continue to get revised downward—this has been the trend for the past earnings quarters
This is a good read into the housing market
This is an interesting tweet that caught my eye, if we think a recession is coming then equities have never bottomed before a recession (which makes sense). If we get a “growth recession” where earnings remain neutral or weaker but no significant negative YoY deterioration what would that mean for stock prices next year?
Hong Kong GDP is -4.5%, that is recession level negative growth
This is why tech continues to be my main short thesis
This doesn’t seem bullish at all but IWM 0.00%↑ closed higher today! “Approx 49% of restaurants were unable to pay their rent this month, up from 36% in September, while 37% of real estate agents couldn’t pay their rent, up from 27% last month.”
*This is not investment advice—I am not a financial advisor but a random person on the internet who does not have a license in finance or securities. This is my personal Substack which consists of opinions and/or general information. I may or may not have positions in any of the stocks mentioned. Don’t listen to anyone online without evaluating and understanding the risks involved and understand that you are responsible for making your own investment decisions.