No disclaimer because, well, there’s no joking matter. So drop your cocks and grab your socks, because this here’s a doozy…

Keep Your Eye on the SPY

If you were privy to be a part of the PokerStars Wednesday invitational the other week (lucky you), you would have heard my rant on buying VIX calls. The VIX is a measure of the volatility in the S&P 500 – The higher the VIX, the greater the uncertainty, and volatility, and greater the swings – and calls, well, for the absolute zero-sum gambling degenerate in me.

But anyone can durrrr at the market with blanket statements like “yo brah, buy VIX. Shit’s gettin’ cray cray”. I’m not aiming to do that here, although I stand by my VIX calls, and if anything, this post will serve up a hot juicy plate of some confirmation bias. Omnomnom. Delicious.

I am also going to fight the urge to not tie this into a GameStop thing – even though it is – I’ll try not to… But no promises.

The SPY has been in a “consolidation” zone from ~4130 – ~4170 since last Friday. Despite ‘Merican folk-lore that “stonks only go up”, consolidation zones are actually very important patterns in the market (and an indicator of a time to enter a position, like when a female says “Tequila makes me party”… GET ME LIMES AND SALT, STAT! While a stock/ETF bounces between its support and resistance, pressure builds prior to a radical move.

If you don’t believe me, take a look at what this joker on twitter has to say about it:

Those who follow me know I mention “consolidation” or “basing” on a daily, and many find this boring or overlook it. For me its the opposite – consolidation precedes the most explosive moves, is the #1 signal I look for on all time frames, and comprises the best classic patterns

Now, on the afternoon of Tue. 05/18/2021, SPY tore through its support levels at ~4130, like a lactose-spiked punch bowl at an IBS convention. I believe this predicts that the SPY is very likely to enter bearish territory moving forward. You may ask, what does any of this have to do with my beloved GameStop (GME)? I tried, people. I really did. But…

GameStop has a severely negative beta. Beta < alpha. So negative beta = alpha male. GameStop is the big swingin’ dick.

But for serious, beta is a measure of the volatilityor systematic riskof a security or portfolio compared to the market as a whole.

In other words, a positive beta of +1 moves in correlation with the market (S&P). A beta of +2 moves twice as much as the market average. S&P up 10%, a stock with a beta of +2 would be up 20%. So a beta of -1 moves inverse to the market. Now that we’ve addressed that, GameStop has an adjusted beta of… Drumroll please…  -21.6! In other words, it’s a gay balck unicorn with green eyes. Simply put, it’s unheard of. GME has a ridonculously inverse correlation to movements in the SPY.

Now let’s take a look at GME’s year-to-date chart to confirm. When GME surged in late January and mid March, SPY was declining. No picture, just trust me 😉 There are likely numerous reasons for this, including but not limited to, market contractions causing lower liquidity for funds (due to losses and redemptions); upward pressure on GME due to the large short exposures held by institutions (margin call theory); and, retail entering GME as one of the few strongly performing investments during market declines AND FOMO (causing a positive feedback loop).

If you’ve stuck with me thus far, congrats. Now check it: At any given time, there is a level for which GEX (gamma exposure) would be neutral. As of EOD 05/18/2021, that level was 4152.5.

When gamma is positive, Market Makers hedging strategies amplify upward market movements. When gamma is negative, you guessed it, Market Makers hedging strategies amplify downward market movements. This strongly contributed to the mouthwatering red days and circuit breakers we experienced in Spring 2020.

NOW, this is critical… Wednesday 05/19/2021 marks the monthly expiration for Vix futures contracts (similar to how Options Expiration occurs the third Friday of each month).

There have been only 4 instances in the past 10 years where Vix expiration corresponded to negative GEX. The subsequent 4-day performance for SPY was…

  1. 3/17/20 (-12%)
  2. 12/18/18 (-8%)
  3. 5/15/12 (-1%)
  4. 8/16/11 (-6%)

Connecting the dots yet, are ye? I believe there is a very strong chance that SPY gets destroyed in the week to follow. Based on the above (average of -7% move), the outlook is SPY to hit low $380s ($383) within a ~week~. I am not predicting this exact level as I am a simpleton. Instead I am simpletonily inferring from the best available historic data that there’s blood on the horizon.

If this does occur, it will lead to widespread panic and margin calls. Not so easy for Citadel, Melvin Capital, and the whole lot of’em who maintain astronomical short positions on GameStop when:

  1. They’ve been investing on margin;
  2. The market is down ~7% or more in a week and GME has -21.6 beta;
  3. Short sellers have lost $930 million on GME and AMC over the past 5 days;
  4. There are likely hundreds of millions of phantom (synthetic) GME shares that need to be covered;
  5. Ryan Cohen (4D chess champion extraordinaire) and GameStop have all but acknowledged the situation at hand via Twitter;
  6. GME’s chart is at the tip of a beautiful months-long triangle pattern;
  7. Retail definitely owns the GME float; and,
  8. Likely 10+ other tailwinds I have not addressed. Sadly, my IQ resembles the thermostat’s room temperature reading and I can’t think about more than one thing at a time… Especially since September/October 2020, specifically.

LIsten up, nerds: Strap in! Because the GME rocket launch is approaching. That’s a given? But rather than timing the squeeze, since all you’d  have to do is buy [more] GME SHARES and hold – no timing required, this week’s suggestion is to buy SPY Puts at/around strike of $383 with an expiration of 1-2 weeks out.

Disclaimer, of course, this is not Financial Advice. Buuuuuut, for what it’s worth, I’m also not a financial advisor who claims I’m an 18 handicap but also loses 6 balls on the first 4 holes. Besides being irresponsibly, nauseatingly long GME, my only expenses are an overly flamboyant party atop a boat and a couple carats of a D color diamond that genuinely hurts my eyes. Seriously! I’ve been eating Ramen almost exclusively and scraping together couch change for some more of that sweet, sweet GME smack.

If this wasn’t enough, you should also note that Warren Buffet, the buy-and-hold champion, just sold nearly all his 31 year-old Wells Fargo holdings. And that’s coming on the heels of Berkshire completely exiting their JP Morgan holdings.

For what it’s worth, here’s Lamborshini’s newest ad:

They better pump up their 7,000/year production numbers.

Lastly, when the dust settles, I propose a new TV show: Who Wants to Be a Millionaire. But the contestants are a bunch of billionaires. Good luck, everyone!