Not a great day in the stock market, even though the S&P 500 finished the day up about 25 basis points. Most of those gains were driven by NVIDIA (NVDA), which rose sharply by nearly 5% after a series of company announcements lifted the stock. However, the RSP — the equal-weight S&P 500 — was actually down almost 90 basis points. There were also about 700 more decliners than advancers on the New York Stock Exchange, highlighting once again how concentrated this market has become in just a handful of names — and how deceiving that can be at times.

Either that, or we have reached a point where liquidity is so limited that you have to sell off the entire index to lift its biggest component.

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This pushed the S&P 500 Dispersion Index to 38.8, taking it back to its level before the October 10 sell-off and near its recent highs.

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Tomorrow, of course, we’ll have the FOMC meeting at 2 p.m., where we’ll learn whether the Fed decides to halt quantitative tightening. Excessive pressures have continued to build in the overnight funding market, with funding rates moving higher today — the average repo rate at DTCC rose to 4.32%, returning to levels last seen in the middle of the month. It probably means that SOFR will rise again when the NY Fed releases the data at 8 AM. The Fed is also widely expected to cut rates tomorrow.

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One should also keep an eye on the VIX 1-Day tomorrow. Given that it’s a Fed meeting, it’s likely to rise. Typically, when the VIX 1-Day increases ahead of a Fed meeting, it tends to fall during or shortly after the meeting. That means there’s a good chance that tomorrow—likely once the press conference begins—we’ll see an implied volatility crush, which could lift the S&P 500 higher regardless of the Fed’s decisions or announcements, as long as implied volatility rises enough beforehand. We’ve seen several examples of this recently, as noted in yesterday’s write-up, with multiple implied volatility crushes occurring on Monday mornings. This same dynamic could potentially play out again tomorrow.

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Speaking of rising implied volatility, today’s nearly 5% surge in NVIDIA came with a sharp spike in implied volatility on the options — a move typically associated with gamma squeezes and driven more by options trading than by any fundamental developments. While today’s headlines likely pointed to company-related news serving as a trigger,it’s clear that the move, both today and over the past few days, has been fueled primarily by call buying and speculative activity.

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Of course, Softbank makes the squeeze in Nvidia look tame. I have never had the privilege of trading options professionally in Japan, so I have no idea how market dynamics work there or whether they are similar to those here in the US.

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But if it looks familiar, that’s because we saw something just recently in Gold, and we know how that’s going….

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