With the bond market closed and implied volatility already reset, it was a quiet day for the S&P 500, which rose by just about 20 basis points. There was some rotation out of mega-cap tech names and into more equal-weighted parts of the market, leading to modest outperformance of the equal-weighted S&P 500 versus the market-cap-weighted index.

The price action over the past month continues to reinforce the view that much of the market’s movement is being driven by options positioning and volatility dynamics. For instance, we’ve seen several Mondays marked by strong rallies, followed by quieter Tuesdays and Wednesdays—suggesting that implied volatility resets early in the week are influencing flows.

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Looking ahead, liquidity conditions could tighten again as a series of Treasury settlements begin. Due to the Veterans Day holiday on Tuesday, the 11th, settlements will occur on Wednesday, the 12th, Thursday, the 13th, Monday, the 17th, and Tuesday, the 18th. These settlements are likely to drain liquidity, push up overnight funding and repo rates, and potentially lift SOFR. There is also a strong likelihood of another settlement on Thursday, the 20th.

It will also be important to monitor the Standing Repo Facility, as usage typically rises on settlement days. Increased usage could signal emerging funding pressures, which may influence overall risk sentiment and market tone over the coming week.

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Despite the S&P 500 finishing higher today, the underlying dynamics painted a different picture. The S&P 500 Dispersion Index declined, while the 3-Month Implied Correlation Index rose—an unusual combination that typically signals the index should be moving lower, not higher.

The spread between dispersion and 3-Month Correlation also contracted, which historically aligns with periods of market weakness rather than strength. In short, dispersion and correlation metrics continue to point to downside risk, suggesting that today’s gain was likely an outlier driven by light trading volumes rather than genuine risk appetite or improving fundamentals.

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The 1966 analog, which I’m currently tracking on two separate paths, continues to suggest that the market may be approaching a turning point. The original track—used as a reference during the 2022–2023 period—and the updated version, which reflects the current year’s pace, both indicate a move lower in the days ahead.

The newer, faster-moving track implies that the index may be near a terminal peak, with a more meaningful drawdown likely to begin within the next day or two. Of course, analogs are never perfect and tend to fail when they’re most anticipated, but this one has held up reasonably well over the past three years, making it a reference point worth monitoring closely.

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More interesting tonight will be the trading action in SoftBank (9984 JP), which remains an important proxy for global sentiment on AI. News emerged that SoftBank has sold its stake in NVIDIA (NVDA), raising questions about what has been driving its recent rally. It will be telling to see whether investors were attracted to SoftBank for its broader AI exposure or primarily as a vehicle for indirect NVIDIA exposure through Japan.

Implied volatility in SoftBank has been rising steadily over the past few months, suggesting heightened speculative activity. If much of that speculation was tied to NVIDIA, the divestment could mark a turning point. The key question now is whether the removal of that NVIDIA link will deflate some of the speculative excess that has built up in Japan’s AI-related names. The next few trading sessions should provide valuable insight into whether this marks the start of a broader sentiment shift.

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