Market On Open, Friday 25 October
DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Reality Suspended
by Alex King, CEO, Cestrian Capital Research, Inc
The election is now just a couple weeks away, and you can see its impact primarily in the Vix. Demand for S&P500 puts is high; I asked Jay Urbain, who runs our Jay's Options service (here) to comment on this.
Here's what he said.
"Note the large open interest for puts expiring on the Nov. 15 monthly options expiry. So yes, lots of puts expiring expiring just after the election. If we look at the IV (implied volatility) for ATM (at the money) put options, it jumps from ~12 to ~16 starting on November 6 expiry."
At the same time we can see that the S&P500 remains in a bullish state. So a simple take is that investors are likely buying insurance by way of puts, but aren't so concerned about the outcome that they are choosing to exit the market.
I think this means we have a kind of stasis for the next couple weeks. Each of the contending parties naturally argues that a victory for the other side represents a calamity; the market isn't agreeing with the polemic. The market is saying, well, let's get the election over with and we can see what happens next.
With that in mind let’s take a look below at how markets are looking prior to the open today.
Before we do - I want to talk about our new SignalFlow AI service.
All Signal, No Noise
A couple weeks back we launched our latest service, SignalFlow AI. I confess to being blown away by the instant-hit status of this service. Usually with subscription services it takes a while to grow an initial membership, then another while to build up a flow of new members and so on. But SignalFlow AI has been a big hit right out of the gate. I’m delighted, but I’m not completely surprised. Let me explain.
The service uses a complex AI model to try to predict when the S&P500, or whichever major liquid market or stock it is asked to compute, is likely to enter a material downturn. There is a lot of heat and light generated in doing so. But that all happens in the datacenter. The output of the model is as simple as simple can be. Twice per trading day, in the morning and the afternoon, the service publishes a signal from the model.
“1 - Risk On” means that the model thinks that no material downturn is imminent.
“0 - Risk Off” means that the model thinks a material downturn is imminent.
No model is infallible as you know. And there are always things that happen in the future that are different from the past that may trip up any model. It is possible that this model is perfect, but not probable. But trading perfection isn’t why so many people have subscribed already.
The reason is simple. It’s the reason I myself have opened and run a specific account that trades solely on the SignalFlow AI model outputs. It’s that the service gets you a Robot Buddy. A robot that has no fear or greed. A robot that isn’t trying to feed you false information so it can trade against you. A robot that isn’t trying to make you look good (so you promote it) or bad (so it gets your job and/or bonus). You just have the robot taking everything it has learned about how major securities markets move, and then considering in that light whether markets are about to turn down or not. However dead-inside you run (and I speak as someone who never gets very excited about markets, whether they are melting up or breaking down), you don’t run as cool as a machine. Your robot sidekick doesn’t care about whether you’re having a good run or a bad run, and it isn’t having its senses overwhelmed by the news, CNBC, FinTwit, your boss, your top analyst, or anyone else. It’s just looking at the numbers. This is a very useful sidekick indeed.
The backtesting results are remarkable, as you can see here. I know full well that backtesting is backtesting, it’s not future-testing. But it’s so good that it gives me great confidence in the model thus far - enough to run capital solely on the model’s outputs.
Today the service is very low cost and provides signal for $SPY alone. We will add additional tickers over time, at incremental cost.
If you’d like to lock in launch pricing - prices rise 1 November - you can do so right here: