Now, That's A Bounce.
This morning in my live trading room I told CLUB/EDGE clients that if SPX could get/stay above $4707, it could fill the gap at $4763.55. HIT! See chart.
I expected this bounce and warned last week: Macro & Micro Price Targets Working.
Literally, last Tuesday, I posed a long post with short-duration price targets lower in markets, but warned I didn't see a big unwind, yet, reminding that we are "Overbought But Not Broken".
On Friday, I followed up:
Result: we perfectly hit my price targets given here from Tuesday:
Tagged $QQQ $394 and $SPY $465 premarket - exactly.
So it was not a surprise that AAPL stopped at its 200D Friday and bounced hard today with tech and semis.
It is not hard to believe that QQQ likely fills its weekly gap at $407.58 before tagging its hrly gap fill at 408.72. Or that the outsized move lower in my Growth:Value ratio last week is reflexively springing higher as Tech gets bought and Energy sells off.
[Convenient that the move lower in the oil-patch was potentially triggered by Saudi Arabia lowering prices. More on that from Craig below.]
It remains a #BuyTheDip market as long as Market Breadth is still positive and Net Liquidity (Buying) remains bid.
I closed my live trading room at 11am ET, so I expected higher #Chase price targets to potentially take until Tues/Wed. Most hit quickly:
AAPL above $181.50 into $185. Hit.
QQQ above $398 into $401. Above $401 into $405. Hit.
SPX above $4707 into $4750 (then $4763.55). It hit today.
Ditto with $AMZN holding above $146 just can't be bearish.
Lots of chases long from $CROX to $CRWD.
It was a morning to be flexible and let the growth bounce do its thing UNTIL it tags the underneath of my Growth:Value resistance area.
It is also hard to short semis ahead of the big CES conference where they will be pitching all-things-AI.
The Week Ahead
Yes, there's a smattering of economic data and Fed heads that matter, but only Thursday's CPI really matters to the disinflation narrative if Fed is worried about real rates rising as headline inflation falls. And my bet last week was that we would bounce into CPI, and potentially the week following, before getting a more durable pullback.
Monday, January 8
Consumer credit
Tuesday, January 9
Trade deficit
Wednesday, January 10
Wholesale Inventories
Thursday, January 11
Initial Jobless Claims
CPI
Core CPI
Friday, January 12
PPI
Core PPI
Friday kicks off earnings season with banks reporting pre-market - representing over 18% of XLF. Russell Rhoads does a nice options preview on expected price movements post earnings.
Given the outsized move in banks past two months (JPM, C, etc), I can't help but see some rising potential for 'Buy the rumor; Sell the news' market reaction.
Macro Musings
US Dollar and Yields softened today, with 10Y + 30Y hitting resistance at exactly the 200D. This is where it will squirrel around. My best: first we go lower in the 10Y, then higher - likely into 4.1/4.2% - but not for ~1.5wks.
WTI Crude took a 5% drop today on Saudi price cuts - finally tipping XLE back down below a key weekly trendline. Are we back to the Saudi's cutting prices to discourage oil production 'elsewhere'? Or as a favor to their new best friends to keep global yields from rising?
Craig Shapiro, LaDucTrading's MacroAdvisor EDGE Manager, has some macro musings worth considering:
Over the weekend, Saudi announces they are cutting oil prices to Asia on persistent global demand weakness and today they price their US$ debt sales at great levels, after significant tightening of credit spreads and rally in global bond markets over the last several weeks. I wonder if this is coincidence now that they are officially a part of BRICS on 1/1/24?!?!
Global economy is probably too weak now to support much higher oil prices so perhaps it behooves Saudi to lower prices now (cut OSPs to China, help your biggest trading partner out who needs lower oil now anyway) in order to keep global yields low as you transition away from US$ peg by selling your UST holdings and borrowing in USD as well which you will pay back later in stronger Riyals as the Gold to Oil ratio (GOR) moves higher over time.
Lower oil prices now will strain US shale production growth for a bit which will make it harder for the US to react in the future when global supply/demand gets better in balance. Keeping oil prices lower now also has the benefit of keeping the Biden admin out of your hair in an election year as the US is too naive to understand the long game you are playing here while you transition out of your UST holdings over time and look ahead to an eventual peg break toward a strong Riyal and using more gold as neutral reserve settlement asset.
@LukeGromen thesis is really accelerating here. Bears watching closely if the GOR moves higher on falling oil prices in coming weeks.
Put Hedging is Baaack... But 1st It's Bullish
Fresh from VolSignal:
The Whale was all business... opening 2024 with a splash, last Tuesday:
+15k Feb'24 / Jun'24 4850 Put Spreads for $56.00He quickly snapped up more on Wednesday:
+10k Feb'24 / Jun'24 4850 Put Spreads for $54.80-$55.00Bringing his total position size on this calendar to ~25k (so far) with a total outlay of approximately $137M, indicating there may be more to come.
We've profiled some big volumes we've seen this trader swallow in the past. All of the trades were short term bets on market direction (delta)...
...it's been a while since we've spotted him swimming across the term structure.The Breakdown...Trader's Position...
Long 25,000 Jun'24 4850 Puts
Short 25,000 Feb'24 4850 Puts
Pays $139M to open trade
Greeks...
This is a LONG VEGA trade, no matter how you look at it. How much? Roughly $19.5M all-in...
But it's also a LONG DELTA trade, given the strike selection and the distinct lack of paired hedge (as is always the case with this traders' visible orders).Actually.. this trade is long quite a LOT of delta
Currently the Whale sits on $2.75 Billion worth of notional delta.Let's get more tangible—...11,550 ES Futures. OUCH
Now, it's not uncommon to see this trader take meaningful losses right out of the gates, only to come back from the depths and surprise everyone with a double up (sometimes better...).As we showed you above, the trade is long a considerable amount of DELTA. This is just market exposure- plain and simple.
Well, not *so* simple, as the trade is SHORT GAMMA...Remember, a delta-hedged option is a volatility bet... Calls, Puts, Straddles- they are all basically the same, once hedged.
The best case then, should involve a rally "to- but not *through*- the 4850 spot level over the next 40 days, expiring the puts right at zero.
Classic.
So that's the bet, and aligns pretty well with what I'm seeing as well: bounce then trounce.