Bit by bit, the S&P 500 inches closer to the 6,000 mark.
Does this matter? It certainly does for those who made big downside bets at the beginning of the year. The same goes for those trying to determine when and how this market “plane” will land. “Which landing? We’re still flying,” said the CEO of American Express on Bloomberg, and the main US indices seem to agree: while the Nasdaq ended mostly flat, the S&P 500 added just under 1%, and the Russell gained almost 2%. Meanwhile, the VIX finished the week convincingly below 20, closing at 18.03.
It also matters to those focused on valuations, looking for signs that the market may be overbought or oversold.
One of our favorite tweet this week came from
showing that the FCF/market cap ratio, normalized with a z-score, is abnormally low—indicating that either cash flow will increase or market cap will decrease.Spooky, indeed.
Why the microeconomic focus on Sharpe Two this Sunday? Well, first of all, because we’re in the midst of earnings season.
While the banks performed well last week (special mention to Goldman Sachs and their $3 billion profit from their equity trading arm), the blockbuster this week came from Netflix. Remember when, 18 months ago, analysts were burying it alive, sealing the coffin, and throwing it to the sharks on CNBC? Well, Netflix added a staggering 5 million users in the third quarter. Yes, during the summer months when people usually spend more time outdoors than in front of screens. As a result, the stock jumped over 10% after the news and is up 62% this year.
This week, with a slew of American companies set to report, the market’s attention will be on two heavyweights from the MAG 7 cohort—Tesla and Amazon.
But beyond that, the calendar is relatively light: a few Fed speakers on Tuesday, some PMI data on Thursday, and that’s about it.
Sure, there’s always the chance of a last-minute geopolitical surprise, but even that seems to be fading. Israel killed the Hamas leader this week, and while Biden called for a ceasefire opportunity, oil prices erased most of their gains from the past four weeks in just two days.
So, what’s the play this week? Just put another coin in the jukebox and dance to the same optimistic tune from last week? The VRP in the SP500 has been quite pronounced for over a month now, and at VIX 18, there’s still a decent margin over realized volatility.
Yet, hold your horses.
Yep, we said it—for the first time this year, we’re advocating a bit of caution, even when the data are pretty convincing and there’s seemingly nothing on the horizon. Well, “nothing” is a manner of speaking.
We’re now exactly two weeks away from the main event of the year: the combination of the NFP (Nov 1st), the US election (Nov 5th), and the FOMC (Nov 6th). And let’s be clear—there’s no guarantee the market will get rocky. Absolutely none. In fact, if it weren’t for a “volatile” Thursday driven by better-than-expected retail sales, we would’ve seen two straight weeks of daily realized volatility below 15. We take this as a sign that the market is eager to move on and settle into greener pastures for the rest of the year.

Yet—wouldn’t it be foolish to get caught in a volatility spike in the next two weeks just because we got a little too confident heading into the elections? Absolutely. The hard part of being a retail trader is that you have to be your own risk manager. While we can’t speak for every risk manager out there, from the few traders/investors we work with, we know it’s okay to be a little less invested a few weeks a year to avoid catastrophe.
What do you think you’ll be missing out on? A 20% rally in stocks? We shouldn’t joke, because—2024 has shown that these things tend to happen more often than we’re used to. Who knows what the next two weeks will bring? Trading is about repeating the same strategies but with slight variations each time. So, at the very least, manage your exposure until Nov 1st.
In other news
Uranium stocks had a volatile Q3, much like the rest of the market. Yet, URA, an ETF offering exposure to the sector, is now up 30% over the last month. There’s been a definite shift in the perception of nuclear as a source of energy over the past few years, especially as the transition to greener energy and the fight against climate change become more integrated into our daily lives.
Even big tech has taken the plunge. This week, we learned that Amazon is investing $500 million in a nuclear power plant to meet the ever-growing energy demands of its data centers. They’re following in the footsteps of Google and Microsoft, which made similar moves earlier this year.
These investments also prove that big tech doesn’t see lithium batteries as a cost-effective long-term solution. Could this be the basis for the next major arbitrage in the energy sector? Long URA, short ILIT?
Thank you for staying with us until the end. As usual, here are a couple of interesting reads from last week:
It’s been a while since we’ve seen much about "quiet quitting" in the media, but whether this trend will ever fully materialize, one thing is certain—engineers are leaving excellent positions at Big Tech.
explains why.India is a fascinating country, often following its unique path, sometimes in stark contrast to Western approaches. Here’s an excellent article from
, about one of the guiding principles of Indian culture: life is a series of bilateral negotiations.
That is it for us this week - we wish you a great week ahead and happy trading!
Ksander
Data, charts, and analysis are powered by Thetadata and Dataiku DSS.
Have access to our indicators using our API.
Book a consultancy call to talk about the market with us.
Contact at info@sharpetwo.com.
Disclaimer: The information provided is solely informational and should not be considered financial advice. Before selling straddles, be aware that you risk the total loss of your investment. Our services might not be appropriate for every investor. We strongly recommend consulting with an independent financial advisor if you're uncertain about an investment's suitability.