Interim Update – 11/4/2022

Good Morning:

• The strong October jobs report this morning confirms my theory that even in this recession, the declining population will keep employment growth stronger than we have experienced in the past.
• And given the people dropping like flies from the jab, the labor shortage will only accelerate.
• Futures are higher this morning to 3780, opening at the top of yesterday’s candle and suggesting a potential pivot at the 50% retracement for a second rally leg higher, just as I had suspected might occur and mentioned yesterday.
• If the market follows through, note the power of the nominal 20-week cycle – even in a bear market.
• Seeing the positives, the addition of put positions yesterday keeps us on our toes. The new, major overhead resistance now drops down to 3800, also the new Gamma flip point.
• Above that level, we believe dealers switch back to a positive Gamma stance, giving prices a bullish edge. Above 3800 resistance, we mark 3835 and 3900 as resistance. Support shows at 3710-3700 and 3650.
• Yesterday was a relatively quiet session after the S&P 500 gapped down to open at 3700.
• Contemporaneously, the VIX dropped back to 25, but there appears to be no incremental demand for long put protection.
• Our implied volatility metrics suggest traders are still content selling downside puts into market drawdowns. There is just no bear follow-through.
• Despite the Put Wall support remaining at 3600, the new flow coming into 3700 has made it a sizeable Gamma strike and decent support.
• Given the dynamics, you can see why we favor an upside recovery in the short term.
• As new data comes in, we will reassess.

A.F. Thornton