Stocks declined for the third consecutive week. The outlook for stocks might further deteriorate since any remaining supportive flows from options expiration (OPEX) have been exhausted. According to GammaLab, the S&P 500 remains within a negative gamma regime, indicating that dealers will sell during declines and buy during periods of strength. However, of greater significance, this implies that volatility will likely remain heightened, thereby sustaining an elevated VIX.
Additionally, considerable downward pressure is emanating from Asian markets due to ongoing challenges faced by China’s economy. Hong Kong's Hang Seng index has experienced a decline of over 20% since its peak in early January. The index dipped below the levels of May 31 during the past week and is sitting on the edge of a further decline.
Consequently, the dollar index has surged to critical resistance levels near 103.50. This particular level holds key significance for the Dollar Index (DXY), as surpassing and moving beyond 103.50 would potentially initiate a substantial upward movement, initially targeting 104.60, followed by 105.90. This trajectory could return the index to levels observed before the SVB collapse.
Once Apple breached its trend line after its earnings announcement, it signified a substantial shift in the dynamics of the short volatility trade. The breakdown of the trend line likely marked a turning point in the viability of the trade. It is conceivable that Apple’s trajectory could lead to a downward movement and a retest of the breakout from the multi-year trend line, with potential retracement toward the gap at approximately $166.
Notably, these price movements in Microsoft do not seem to reflect the fundamental dynamics of the
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