Birthday Rally - Happens 'Every' Year
Growth Scare, Stagflation & Recession Delayed For Now
VIX Overshot 20!
I did warn clients last week before I left for the long weekend (to host family & celebrate mother's day and my birthday), that every May 12th I can remember we have had a rally! And guess what: we got another May 12th rally!
Now, before this 'surprise' gap up, there was a V-shaped path to get here ...
Oversold bounce April 7th off my SPX $4878 short price target given from early March...
Policy Intervention April 9th when Trump delayed ROW tariffs 90 days which I caught live for clients...
Then Tues April 22nd I posted my falling VVIX & VIX call into May OpEx (this week) which was bullish markets. In fact, not only did VIX fall into my 20 target, it overshot it!
And on Wed April 23rd (and every day since in my live trading room), I showed how Fed Liquidity broke back above my line-in-sand yellow line which was bullish markets. I even gave an S&P E-mini Futures target which hit today: 5928.25!
And past few weeks I have detailed the mechanical flows that were also bullish markets: 5/05/25 Live Trading Room Market Recap & Trades - It Feels Wrong To Be Long, And Yet...
Prior to Sunday's news on US-China Trade "Deals" that lifted NDX futures +4% and triggered hedge unwinds into today, Goldman confirmed what I kept highlighting:
"if everyone is so bearish, who is buying?"
(un)natural answer = systematic community who have purchased ~100bn of global equities in the last 10 days. via GS
Nomura chimed in as well:
"...past two weeks have seen a grand total of +$118B of “buy” flows across Leveraged ETF rebalancing and Options Dealer hedging flows, the largest two-week “buy” impulse we have seen in at least the past year".
But Monday was a tad different I believe, in that not only does mechanical buying beget buying, but I also warned past few weeks that once SPX got back above 5750 it would trigger the larger hedges from the hold-out crowd to more quickly unwind.
Remember, sentiment was still largely bearish 11 straight weeks (according to GS), and hedges had not been properly unwound. I said expect there to be a fast move higher once we reach that call wall of 5750. Well, Monday morning May 12th markets opened at 5807 with a brief tag of 5786 before pushing higher into 5907 today. That's a big move after closing at my SPX 5670 monthly resistance on Friday.
This large algo-triggered move Sunday night was in part due from the news that US agreed to a 90-day pause on higher tariffs against Chinese imports in order to hash out the details later, with telegraphed plans to lower tariffs against China from 145% down to 30% (although later Bessent said between 10% floor and 54% not-to-exceed).
The reality, however, is that...
"Over the past thirty years, 1995 to 2024, America’s overall effective tariff rate averaged 1.8%. Trump’s tariff floor of 10% is over five times that average — a massive tax hike by any standards." @stephenroach, Former Chief Economist and Asia Chair Morgan Stanley
Still, the market looked past the ridiculousness of this fake trade deal and fake benefits to US markets and economy. It had one mission: unwind put hedges forcing dealers to buy back stock, gamma squeeze stocks triggering short-covering, and make bears reconsider their growth scare & stagflation macro trades.