Samantha's RECORDED Live Trading Room - 8/02/24

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#trading-room-summaries by Rithika & Michael

Greetings. We are two of Samantha’s Live Trading Room Moderators. Rithika focuses on the the chase action for intraday moves. Michael captures a summary of all ideas & trades across all timeframes - chase, swing & trend. We both make best efforts to cover her trade set ups as well as those requested by clients in the room.

For best results, listen yourself. Or better yet, join us live!

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Rithika's Chase Summary

From Sam:

Reasons To Hedge For SPX $4,300
I hope this post is completely over-the-top and ridiculous, but I must say this again for all who were not in my live trading room this morning.
We should bounce here. ALL of my equity swing short price targets & intermarket tells from FX to Fixed Income have hit.
But... I see no buying I trust, yet.
In fact, despite FULLY expecting this, I just told clients, anxiously, as I head out for a week of vacation:
CAREFUL: WE HAVE A GLOBAL MARGIN CALL
Don't be cute. Yes, we could bounce, but we sliced through everything I had for support.
I warned July 19th: "market structure is breaking" and "FORCED SELLING is not done."
Fast forward to today:
THIS is a perfect storm - even if temporary/talked back - of FORCED SELLING that is not done big picture, because...
1. SAHM RULE TRIGGERED
2. VIX BACKWARDATION TRIGGERED
3. NEGATIVE DEALER GAMMA BEGETS NEGATIVE GAMMA
4. VOLMAGHEDDON 2.0 RISK
5. CTA'S FORCED SELLING & STOCK BUYBACK BLACKOUT PERIOD
6. CONCENTRATION RISK STILL DERISKING
7. YEN CARRY TRADE UNWINDING
8. BASIS TRADE UNWINDING
9. ENTIRITY OF YIELD CURVE COLLAPSE
10. GOLD 'AS COLLATERAL' AT RISK OF SELLING-OFF
I could go on but these are just my Top Ten.
High Yield OAS credit spreads are about to blow out and oil weakness can accelerate lower.
Translation: Know what you own.
SAFETY PAYS
Hope I'm wrong & we get a helluva snap-back rally next week, but don't assume NVDA + AAPL will save us.
Also, maybe watch this short segment from @Craig Shapiro macro-advisor-craig and myself we delivered to EDGE clients on the eve of this market correction, July 9th: Reasons To Hedge For SPX $4,300

FORCED SELLING = FORCED CUTTING"VIX 20 And Then Let's See"
Wednesday's bounce trapped a lot of bulls.
I doubled down with my continued market call for SPX 5376 + QQQ 449 with VIX to 20.
But VIX didn't neatly tag 20 and sell off. SPX opened BELOW 5376 and is a "press short" as it leaves a daily Head & Shoulders AND Island-Reversal pattern above. That is why I said near open that SPX staying below 5376 is very bearish.
Only reason why QQQ is holding 449 daily gap price target is because AAPL is green + NVDA is trying to bounce - exactly as massive puts are piling into NVDA for next week's OpEx. Just sayin. I don't trust either of them, and here's why I want to focus on VIX as one tell; Gold as the other.
@Alpha_Ex_LLC weighing in on the significance of this VIX move - check out the outlier: AUG 1st

VIX move is vastly "outperforming" the move down in the SPX.
Typical "beta" over last couple of years is around 4. Today, the VIX is up 8x the down move in the SPX.
Implied vol of vol is soaring with the VVIX up more than 20%, something that's happened just 23 times in the past.
In good company here, MEME of '21, Pandemic in '20, XIV of '18, China Aug'15, EZ Sov Crisis '11, GFC in '08.

AUG 2nd

VVIX up 45... there are only two other days when it rose by more than 40... GME on 1/27/21 and XIV on 2/5/18. both of those nearly broke the SPX vol market.

So, VIX tagged 29.66 - a high not reached since the March 2023 bank crisis.
And that's why I was a bit speechless this morning while I looked for a market bounce but couldn't find it!!
And sure, we have fallen slightly - back to my 25.20 monthly support/resistance area which I gave as market bearish if above, bullish if below to help clients navigate after I close my trading room.
But truth is, spot VIX can stay elevated until we get a macro trigger to buy markets.

I know you want to laugh out loud at that, but hear me out.
Post FOMC decision not to cut - a mistake in my opinion - the Powell presser made it seem like Sept rate cut was on-the-fence. Odds dropped from ~20% bet for Sept 50bp cut and from 100% to 80% bet for 25bp. Another words, he was too hawkish. 10Y2Y steepened sharply and global yields - not just US - crashed.
THIS is the market telling him/Fed that they are wrong and behind the curve.
My bet: FORCED SELLING = FORCED CUTTING.
And it will not be 25bp but at least 50bp and it may even come sooner if market continues to sell down into Nov 1st "Fed Pause and Yellen Yahtzee" levels.
Think: Powell at Jackson Hole - which is a full three weeks away until August 22-24!
Any earlier and they will appear panicked making matters worse.
VIX In Backwardation As A Timing Tool
I have discussed my fear that we were headed there, which is why I was so confident to press short (ignore Wednesday bull trap).
But now we need to interpret it closely.
The value of the spot VIX Index itself is determined by how traders of SP500 options are pricing volatility premium.
When traders see a lot of risk, those selling options demand higher pricing. Make sense? SPX put values are up nicely as a result ;-)So, when my VIX 3month futures spread compared to spot VIX goes negative, it can be an excellent time to buy the market.
It can be a great tell that VIX sentiment and IV expansion in SPX puts have gone too far. VIX should revert lower and market bounce.
But... it can also be a signal that all-is-not-well and there is a reason for the spike in VIX and the oversold conditions (negative for this spread and markets).
Oversold can become further oversold.
Also important to consider: know your timeframe.
During the protracted correction of 2022 - where SPX fell 20% and NDX -35% peak-to-trough - my VIX Backwardation spread went negative before bounces, while the market continued its downtrend. Another words: these VIX rallies did not end the market's downtrend; they only brought temporary relief rallies.
That's why I must use other Tells to time a reflexive bounce - or not.
GOLD As A TELL
GOLD as a COLLATERAL TRADE is a good asset to track for seriousness of this correction.
Gold selling off could mean the global margin call I referenced in my earlier post is in fact warning of a full-blown deleveraging event.
THIS is why I got particularly nervous this morning live commentating.
It is not a good feeling to bear witness to a major liquidation event - so apologies for my stuttering breathlessness this morning - but that is what I want you to guard against.
Or it could just mean money is going home...Yen Carry Trade Unwind
We have had ~13 years of investors (read big money) borrow yen at wicked low interest rates.
They converted yen to US dollars mostly (other currencies too).
They invested this cheaply financed and highly leveraged money in high
ER-yielding assets - READ: US STOCK MARKET NAMELY TECH.
When the yen strengthens, like it has as USDJPY has fallen from 162 to 146 against the dollar, foreign assets (READ: US STOCK MARKET NAMELY TECH) are sold to buy back yen to repay those loans.
A strengthening yen also makes gold less attractive so it is not easy to know if this is just rotation out of gold into yen OR ... FORCED SELLING out of gold as it also serves as a collateral trade against margin calls.
So with that, remember my big picture warning for clients JULY 25th:

MY WORLD VIEW POEM:
Credit spreads compressed.
Volatility suppressed.
Currency depressed.
From Policy Interference expressed.
We have Quantitative, Monetary & Currency EASING
Which is LIQUIDITY producing versus seizing.
Deflation & Devaluation BEGETS Derisking & Deleveraging
Bonds were already sold. Equities are now way too bold.

And NO, Bitcoin will not fix this.
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OK, so these were the Big Questions I got from clients this morning that I wanted to answer in writing.
I hope it has helped. I will post a few key charts under my intermarket-tells to remind that this is A TOP that will have strong counter-trend rallies into A BOTTOM. Also remember, this timing is not unexpected. Market is seasonally weak from July 17th into September/October OpEx. The problem is that the Yen Carry Trade will determine that most likely. Eyes on USDJPY and Yen; Gold and Credit Spreads; Cumulative Volume and Breadth; SVXY and BXM.GOOD LUCK AND YOU'VE GOT THIS!
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HOUSEKEEPING:My Live Trading Room IS OPEN NEXT WEEK while I am on vacation.
It will be run by @Hans Albrecht of options-mentor-hans along with active market analysis & trade support by @archnakj @Rithika @Mikey Bot @Nel @Tiff - with @Craig Shapiro @Geoffrey Fouvry @Alex Kenton working directly with EDGE clients and posting their analysis in their channels!
I wish you all a fabulous week.

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Michael's Trading Room Summary

AUG 2, 2024 AM

MAG7 - Under the 10, 20, & 50-day MA's - looks like a large gap lower in the premarket session.

IWF:IWD - still under 10, 20, 50 day MA's and looks to open with a test of the 200-day MA. Still under 1.95%

INTERMARKET

T2100 - testing support (daily)

T2104 - Just starting to roll over. Net selling in focus.

T2123 - has some room until it finds support.

T2126 - testing support (daily)

WTI CRUDE - new lows on the week

GOLD (futures) - coming into weekly resistance (2480 area). Watching GOLD for a global margin call.

Bit Coin - rejected 65.5k again; back under 65k.

FX

Dollar (DXY) - below 103.50 in premarket trading. Dropping with stocks.

USDJPY - into the bounce area - 148 PT hit.

BONDS

TLT - 97.50 resistance & PT hit. 100 is a "even stronger" level of resistance.

TYX - we better bounce.

TNX - 38.71 - we are into Sam's PT.

ZN (10Y) - steepener of size

ZT (2Y) - steepener of size

10/2 spread - didn't quite get into zero

INDEX

NYFANG - nearing the TL weekly.

SPX - should have a bounce here. shorts worked great. At the PT today. Above 5376 should offer a gap fill. SPX - 5265 area next PT & then we'll see

SPY - rejected perfect yesterday. 536 PT made. should have a bounce here.

IWM - Under the 212 level that it needed to hold. Looks to be forming a weekly bearish engulfing.

QQQ - rejected perfect yesterday. 449 PT made. should have a bounce here.

VIX - above 25.00 weekly.

BXM - dropped. still dropping through the morning session. One of the biggest drop days that Sam can remember ever

HONORABLE MENTIONS

ABBV - doing great.

AAPL - still green. Has not broke it's trend (weekly).

AMZN - hit the 50-week so should see stability here.

AMD - 131 is the level to stay above - don't let it fall. At key support at 131 (4 levels of support) ... OMG it has to hold here or it's going to the 200-week MA.

GLD - taking off.

GOOGL - still breaking

LMT - great

INTC - Under 22 premarket. Below key levels.

MSFT - going lower.

META - going lower.

NOC - great

NVDA - great scalp. stunning short on everything. 97.40 then 96 would not surprise.

PEG - just went red.

RTX - great.

TSLA - 212, 206, 186 short PTs.

XLU - doing fine

XLP - doing fine

XAR - gapped down.

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