Interim Update – 11/1/2022

Good Morning:

• Looking at the options market this morning, the Call Wall (highest open interest and Gamma) is now solidly placed at SPX 3950 and SPY 395.
• Expect it to act as our ceiling into the Fed announcement and perhaps after. If we go to 3950 today, the price level will likely cause more chop and pinning like we saw yesterday around key strikes.
• But more concerning, the street is not hedged as they have been ahead of previous Fed meetings. With the Put Wall (highest put open interest) down at 3600, even a parachute won’t help if the Fed disappoints the “pause” or “pivot” crowd Wednesday – and I am almost certain the Fed will disappoint them.
• One investment bank yesterday said it well, pointing out that tomorrow could either be the best day of the year thus far or lead to an 8% intraday drop. Nice odds, right?
• This 50/50 proposition is where gamblers make fortunes. I am not a gambler. I work with statistics and probabilities, and in the current situation prefer to wait it out.
• Singles and doubles brought us 600%+ returns this year, not home runs. And we don’t need a home run loss, either.
• The next important turn will be around the election. That turn is not the only turn ahead, just one of the four important turning dates we encounter in a calendar year.
• In an unusual turn of events, we have the Dow leading and the NASDAQ 100 bringing up the rear guard off the October 13 low. The S&P 500 is in the middle.
• The S&P 500 has good support at 3905, 3880, and 3845 today, with resistance at 3925, 3950, and 3980.
• If we drop down to that level, expect some pinning around 3850 for most of the day. Price will likely mark time into tomorrow’s Fed announcement once it reaches today’s destination.
• I will be in the trading room from the Open through lunch. Gap Rules apply today.
• Today you can skip day trading as there may be scant opportunities as the market moves sideways into the Wednesday Fed announcement. And recall that the better the stock market has done, the more likely the Fed will stay the course of normalizing interest rates and selling off their balance sheet – assuming anyone wants what they are selling.
• Realize that as rates increase, bonds will start competing with stocks for capital. It has been a long time since investors earned a decent interest rate on CDs or bonds, including municipals.
• Tomorrow will be the day for action, and I will be in the room for the fireworks.

A.F. Thornton