Pre-FOMC Observations
Just wanted to put some thoughts together as we approach FOMC and it appears there’s quite a bearish echo chamber across Fintwit.
Market Action under the hood
S5TW - % of stocks Above 200D MA
SPX is just under 1% off the highs while % of SP500 stocks above 200D is down quite a bit into the 38s.
S5FD - % of stocks Above 5D MA
You would think SPX should be down 3-4% from the highs with how low this metric is.
One can easily deduce that the metrics above are because of low concentration of s tocks moving higher while the rest of the market retreats.
Let’s take the past 1 month of SPX and look at the 1M performance of the following sectors in SPX
XLF - FInancials
XLE - Energy
XLRE - Real Estate
XLI - Industrials
XLP - Staples
XLK - Technology
XLB - Materials
XLV - HealthCare
XLY - Discretionary
XLU - Utilities
Key Takeaways - XLE (Energy) and XLK (Tech) are the only two sectors to beat SPX.
Let’s dig into XLK…
One can simply look at the Semis ETF (SMH) against MAGS, SPX, and RSP and see that the semiconductors are leading the chart the past month
SMH is the main driver of Tech’s out performance as MAG7 is just slightly over the SPX performance.
An interesting statement from JBL 0.00%↑’s CEO on their earnigns call yesterday.
A few tickers I’m monitoring
ATH Dwontrebd Break and flagging on declining volume
Breaking out over this 18 month S/R Zone… I’d like to see a look above and backtest to confirm it’s not a false breakout.
Final observations on Market Structure
CPC - Total Put/Call Ratio overlayed with SPX
The Yellow Lines are there to annotate times when we saw a sudden surge in Put/Call Ratio - I just noted a few lines in the past year that generally showed a point I was trying to make.
Relatively fast VIX Spikes to SPX
We know VIX is a recursive calculation to the cost of 30 day option pricing. It should be no surprise that when volatility (VIX) spikes quickly and nothing happens, that the volatility unwind pushes market ever higher.
SLR
Yesterday Afternoon, we got a headline about seasing of SLR for banks. This in essence is private QE. By adjusting the risk requirements of banks, you’re in essence creating an environment for economic expansion on the backs of bank lending.
Consider a bank where normally they need some large value of reserves for lending and you reduce that reserve… We know banks generally push the limit to their lending risk so now you open up the possibility for them to take on more lending risk and make more $$$…
So what
Market internals have generally pulled back into FOMC and OPEX. Strength in the market is generally tied to a few sectors/tickers. Market has quite a bearish lean given CPC and VIX. Market needs a reason for volatility to remain bid. Be very careful subscribing to geopolitical risk as a crash source or any other narrative. Until we get through FOMC (get dot plots), and make it through Quarterly Opex, remain nimble and the most painful action would be a sharp rally to melt bear’s faces.
Thank you Yam.