The market limbo continues as most dips get eaten up by the buy side. The S&P500 cannot close under the 200 day and buyers keep coming out on drops in the market.
Banking and recession worries still seem to be high, which is the weight on the stocks that are most volatile in these scenarios and most affected by changes in monetary policy, which means small caps and growth, like the Russell 2000 stocks (IWM). On the other hand, large-cap growth stocks are benefiting from falling yields and rates with Tech outperforming and a lot of money flowing into tech names. The Nasdaq is now outperforming the Russell by about 8.3%.
This can be a precursor of times to come, S&P500 just in the middle confused as ever.
Over the last two weeks, the VIX was flipping around insanely as well, while the market didn’t drop aggressively, there could be some stronger pushes to the downside overall.
Fed week is over. More hikes.
One of the most anticipated events this year so far, was the Fed event during the banking crisis, will they hike, or will they pivot? WTF is going on, no one knows.
The Fed raised 25bps as expected and the dot plot showed that the rate expectations will stop hiking this year with one more hike and no cuts to end the year, cuts most likely coming in 2024, with disparity among Fed officials.
Powell did acknowledge the overall banking crisis saying that things seem to be under control and it is “too soon to tell how monetary policy should respond” with further policy firming on the horizon.
We trade these events at TRADEPRO Academy live in Zoom, this last was no different than the past events, there were multiple trades given out for 30-40 point runs.
Check out the Futures Live Room using code VIC20.
Tightening & Credit
Bond yields continue to drop as bond prices rise, the 10Y and the 2Y are on their way lower while markets hold sideways, suggesting wider risk in credit that can put some downside pressure on the market while economic data is showing strength.
TLT is still holding under 108/109 region.
I think there is a long in bonds coming, if we can get pullbacks in TLT, I don’t anticipate us dropping too hard under 100 and seeing the run above 109 fairly soon.
S&P500 & Futures
Buyers just keep the rebid strong on all dips, no matter the news, no matter the move during the overnight, the longs step up it seems. However, noticeably on the last rally or last few rallies the bidding was weak and there was no real selling, I think that this upside is running out of time as the desperation buy on low volume keeps the market above the 200 days.
The S&P500 Futures managed to rip on Friday from the 3938 region (wasn’t expecting that strong of a run).
From here we are trying to enter the top distribution from the 4023/27 region, I think there is a stronger sell that is attempted from this are or up at 4045. I don’t think the longs are that strong, or at least the sellers are going to have to take it at the start of the week.
Buy-side to hold the 3990 regions as the top of the distribution for the distribution lower with another support at 4005. We’re still in a limbo region, I want to try to sell 4023/27 to start the week and see if sellers can push under 3990.
Tech, Small Caps & Correlations, Trade Setups & where are we headed?
Over the last few weeks, I gave some long ideas that have paid multiple times over, and am looking to close some out and claim some profits on these moves, because I think there could be some other opportunities in this market.
For that, we have to look at what’s going on in the correlator markets.
What is going on in tech, is the divergence between tech and small caps going to get closed like bonds and tech?
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