JD Durkin: Bob Lang, founder and chief options strategist at Explosive Options. Good friend of the show. Very good friend of mine. He’s here to kick off the broadcast. What’s going on, man? Good to see you here today.
Bob Lang: Great to see you here, JD. It’s been a real exciting day in the markets, hasn’t it?
JD Durkin: Every day is an exciting day in [unclear: “the valley”], especially when you’re here. Okay. So we’re always looking for the VIX. The VIX is down to a 19 handle. Overall volatility has been back. Is volatility here to stay? How do you think about volatility, especially the last week?
Bob Lang: Yes. So I’m talking about volatility here. And really, basically, the reason why we get increases in volatility is because there’s a lot of uncertainty happening in and around the markets.
JD Durkin: What’s the kind of uncertainty we’re talking about?
Bob Lang: Well, last week, obviously, we had those midterms. Nobody really knew exactly where we were going, what direction we were going to go into. And now we don’t really know what direction government policy is going to go into. Is it going to be favoring the Democrats, or is it going to be favoring Republicans, or are we going to get gridlock, which oftentimes the market really likes gridlock, right? There’s also some uncertainty about the latest thing in the closet here that just came out, which is Nvidia. What’s the uncertainty with that? Is it going to affect any AI investments? Is it going to affect some of the hyperscalers and so forth? So a lot of uncertainties over here to uncover. Also, the one boogeyman in the room over here is the Federal Reserve, you know, where are interest rates going to go? We do have a policy meeting coming up in a month. And dare I say that the fed funds futures are looking at a [unclear: “100% chance”] of a rate hike next month.
JD Durkin: Wow.
Bob Lang: [unclear: “10% chance”] of a double hike. And I think one of the Fed governors today, Christopher Waller, talked and said, hey, look, you know, if inflation remains hot, and this was before the CPI came out, if inflation remains hot, we’re going to have to look at a 50 basis point hike in December. The market is starting to price that in. If you go out to January, the following month, JD, 75% chance of two hikes between December and January.
JD Durkin: So we’re looking at probably a much higher cost of money by the start of 2027, especially, to your point, on the backdrop of a hotter than expected, not a scorching hot, CPI print, but headline and core both coming in a tenth of a percent hotter. We don’t have the year-over-year number because, I had to remind myself, we had a federal government shutdown. 3.6 on the core for year over year for CPI. So what do you look for for PPI, wholesale inflation? We actually get a Friday print this week, but it’s one of the last pieces of data the Fed will take in on the macroeconomic front ahead of that December 9th meeting.
Bob Lang: I’m going to give you a [unclear: “good Lord”] on that one, because the PPI number for September was scorching hot, 15% annualized. Think about that, a 15% annualized inflation rate on the PPI. Way too hot. And that was with oil prices in the 80s. Now, don’t forget, in October we saw oil prices well above $100 a barrel. And that has a huge influence on the PPI number. So could we be looking at double-digit PPI annualized once again? Absolutely. The chances of that happening are very, very strong. I don’t know when prices are going to be coming down. Obviously, the oil prices have been coming down for the last 4 or 5 days. So that’s a positive. But still up in the mid-80s range. This is an elevated level that is very concerning. Gas prices are coming down, and, you know, grocery prices are coming down. So it’s affecting the PPI. And that number is going to be extremely hot. I don’t think people are prepared for that.
JD Durkin: Let me ask you about technical levels that you’re watching. We’re closing today at 7520. You and I were talking a bit before the show, maybe 7200, 7600. What levels are you watching, and what will you look for to give you confirmation that we may be approaching or breaching some of those levels?
Bob Lang: So to the upside, if we get a couple of closes above, say, 7642, 7660, [unclear: “confirmed meanings”], it breaks it, and then it confirms that the following day. See, today would have been great to confirm yesterday’s big strong rally, but we didn’t get it. Go back to last week, when we had that big rally on Wednesday, the day after the midterms. We didn’t get that follow-through day. In fact, we just fell off a cliff and we were down 4% on the day. We did manage to come back a little bit on Friday and came back a large amount on Monday, but we didn’t get that confirmation today. Volume levels were not good when the market was up on Monday, and that was kind of a clue that there’s not a lot of energy coming into today. And we didn’t get that today, even though we did finish off the lows.
JD Durkin: Yeah, we certainly did. All right. Bob Lang, founder and chief options strategist at Explosive Options, also author of the book... remind me.
Bob Lang: Know Your Options.
JD Durkin: Know Your Options. That’s right. I got a signed copy at home. The great Bob Lang. Thank you for being here, brother. Really a pleasure. I always love talking with you. We’ll do it again soon.
Bob Lang: Thank you, JD.
