Oil prices stay elevated as Iran supply fears overshadow Russia measures
On Thursday, S&P 500 finished the day lower, although not by much, even though they finished well off their intraday lows. Not sure what happened in the morning, but we saw implied volatility rise sharply.
If I had to guess what drove trading, it was a big morning drop that pushed implied volatility sharply higher. The index fell to around 6,870, below the put wall at 6,900. That led to those puts being monetized and closed out, which started pushing implied volatility down.
As the index rose, anyone who sold calls or bought puts on the way down got screwed and had to rush to unwind those positions. With the index stalling around 6,950, it took a close buy imbalance to finish the final thrust higher.
If I had to guess…
What was really interesting about the meta rally was that the 5-Yr CDS actually widened, not a lot, but it did widen. Not what I would have expected to see given the stock market’s relief rally. This will be something to watch in the days ahead. For now, the CDS is trading within the same range it has been in, but a push higher could change how the market views the equity.
So much for QE, whatever you wanna call it. Reserve balances fell under $2.9 trillion. Imagine what reserves would be if the Fed weren’t buying T-bills. I know everyone is very excited about the quarterly refunding announcement on Monday, February 2, but I would think it could have some importance if, for some reason, the Treasury decided, because of the ballooning debt level, thought that it would be appropriate to increase the end-of-quarter TGA balance to $950 billion. That would not help liquidity.
Expanding on liquidity, today is also a treasury settlement day.
Meanwhile, Bitcoin fell about 6% on Thursday. At least based on the technicals, Bitcoin appears to have broken out of a bear flag, and if support at $83,000 is broken, the $75,000 region could be the next stop. Maybe the settlements that come next week for another $64.3 billion can even help it get there.