Broad-Spectrum #20: Climbing the wall of worry?
The "sell in May and go away" narrative is unavailable this year. Does that mean we are expecting the bull run to start?
Welcome to Broad Spectrum Finance.
Markets seem to be staying firm and tight, for some reason.
The Commitment of Traders (CoT) report shows that Z-scores of speculative positioning on index futures (except for techy NASDAQ, because you know, AI and stuff like that. They are leading the rally) are bearish (against 2-year rolling historical data).
The majority of the market is still expecting a recession to kick in this year. They failed to rightly predict Q1 EPS recession. But the analysts at Wall Street banks think we are getting closer.
If you look at the media and recession content, it looks like we are already in one though;
The FED is still not back on the dovish note. The 3M treasuries’ price action and yields are supportive of that reasoning too. It looks like we are sticking to the “Higher for longer” narrative for the next few months at least.
The bond market puts 0% chance on the possibility of FED easing at the next FED meeting, which is a month from now.
The Commercial Real Estate Market is where everyone expects the last shoe to drop.
TLT 0.00%↑ might be popping to the upside soon, completing its consolidation.
April CPI headline number was below expectations, coming in at 4.9% YoY and 0.4% MoM, which did absolutely nothing for the risk-assets except creating a bull trap.
Predicaments in the regional banking sector in the U.S. continued.
There’s still no clear solution on the US debt ceiling. We are closer to being asleep on the wheel at this time. Markets are not in the panic mode just yet. But there was a time when things got slightly out of hand when they were a bit late to take action:
As a result, CDS on the U.S. Government Debt is rising like... well. You can put a nice term here on your own. It does not look good, because the CDS buyers think the politicians might fall flat on their faces in terms of being in time to make some decision and act on it.
And they are higher, compared to the time when the whole debate with the debt ceiling was in the limelight.
Crypto took a small beating. No narrative, no clear direction, no big commitment on the futures contracts. Some meme coins mooning then getting almost rug-pulled after Binance listing. We don’t even need to name names here, you all know what we are talking about. The Frog thingy.
We don’t much about crypto these days, because there is still not much going on with them. Outflows, lack of interest, lack of narrative, lack of clear direction.
Short-term rates rose, long-term yields fell, yield curve inversion got worse.
But you all know these.
So what else has been happening? Is there actually a healthy narrative under the surface?
The number of stocks above their 200DMA is a mixed bag, not showing a clear direction.
0DTE option craze has been pushing the SPX price action left and right, and effectively creating a scenario where the index is squeezed and stuck in tight directions. Oh the mighty Gamma.
There are huge walls at 4100 and 4200 levels. It is hard for index the break through them, you need a lot of strength. Even though the hefty volume is on the call side.
You all know what this means. Sideways markets.
So how can this scenario end? Breaking to the upside? Failing? Crumbling?
A lot of traders use Copper Futures as a healthy barometer/predictor to the global economy and possible returns on market indices, risk-assets. And Mr.Copper says we ain’t going nowhere anytime soon.
Retail is not buying equities (More likely they are piling in on 0DTE calls), they are sellers.
Institutional players are sellers.
Hedge Funds are sellers.
So who is keeping company equity shares afloat?
Companies themselves.
1. Corporates were the sole buyers through buybacks, as institutional, hedge fund, and retail clients sold equities; retail clients have been selling for six consecutive weeks, while hedge funds sold for the first time in four weeks.
2. Buyback activity is strong and tracking above seasonal trends.
SOURCE: BofA via The Market Ear
But you can’t hold the markets in these ranges forever if the only buying you have is the corporate buybacks, right?
So we might start getting some bad news... maybe.
Well, speaking of banks...
Possible bad signs
Basically, not a lot to catch up on lately nearly anywhere.
But exciting narratives are looming over the horizon.
We’ll be back with exciting content soon.
Stay tuned.
Sources
The Market Ear, CME FedWatch, Bloomberg, Evercore, GRIT Capital, Morgan Stanley, CoinShares, LongtermTrends, The Daily Shot, Point-Blank Trading, TopDown Charts, Refinitiv, Andrew Adams, StockTwits The Daily Rip, Steven Strazza, AllStarCharts, da Chart Life, Adam Turnquist