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Market Overview – Option Expiration Calm
Friday marked a $5.3 trillion options expiration day, yet trading stayed remarkably calm. All four major U.S. indexes—S&P 500, Nasdaq, Dow, and Russell 2000—closed higher at record levels.
Key drivers behind the quiet rally:
- Options Hedging Balance: Massive open interest at S&P 6600–6670 with neutral delta hedging pinned the index near key strikes.
- Policy Consensus: The Fed’s rate-cut path is clear; markets expect easing without recession.
- Risk Appetite Surge: Tech leaders advanced, blue chips caught up, and small caps outperformed, reflecting an overheated short-term sentiment.
Technical Picture – Overbought Signals
Valuation: S&P 500 trades near historic peaks (comparable to the 2021 bull-market top).
RSI Extreme: RSI has stayed above 45 for 102 consecutive days—a 60-year rarity suggesting a pullback within two weeks is likely.
Key Levels:
- Support: 5-day MA at 6620–6630; below that, the 1-month MA at 6520–6550 is critical.
- Resistance: 6700, then 6740–6750.
Russell 2000: Closed with a long upper-shadow candle, historically a lead indicator of short-term corrections.
Stock Highlights
- AI Theme: Oracle surged late on a rumor of a $20 B AI cloud deal with Meta, keeping AI infrastructure the market’s primary focus.
- Real Estate: Lennar missed earnings; mortgage rates rose despite Fed cuts, pressuring housing stocks.
- Fintech: Upstart (UPST) consolidates between 67–72; a break above 72 could trigger upside, below 67 risks a drop to 60.
- Logistics: FedEx beat estimates and raised guidance but shares remain down 16% YTD; UPS continues a four-year slide on weak U.S. demand and Amazon competition.
- Retail: Mastercard warns U.S. holiday sales growth to slow to 3.6%, favoring discount retailers like Amazon and Walmart.
- Healthcare: Humana (HUM) plunged on concerns its 2026 CMS star rating may be cut, potentially pressuring government reimbursements.
Outlook & Strategy
- Risk: Overheated sentiment and extreme RSI suggest a short-term pullback is likely.
- Focus Areas: AI and semiconductor leaders remain core; avoid small-caps near-term.
- Key Watch: Oracle’s rumored mega-deal, UPST technical breakout, and Humana’s October rating decision.
