/ April 09
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Wednesday:
FOMC Minutes
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Thursday:
Core Inflation Rate YoY (3% exp.)
Inflation Rate YoY (2.6% exp.)
Initial Jobless Claims (225K exp.)
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Friday:
Michigan Consumer Sentiment Prel (54.5 exp.)PPI MoM (0.2% exp.)
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Wednesday:
Delta Air Lines
Constellation Brands
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Thursday:
CarMax
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Friday:
JPMorgan Chase
BlackRock
Morgan Stanley
BNY Mellon
Wells Fargo
Daily Briefing
*It was another volatile session in the stock market; there was a strong rally right out of the gate, resulting in the S&P 500 and Nasdaq Composite trading up as much as +4.1% and +4.6%, respectively; the Dow Jones Industrial Average was more than 1,400 points higher than yesterday at its best level;
*However, the major indices finished in negative territory and the S&P 500 (-1.6%) closed below 5,000; catalysts being cited as reasons for the deterioration include a confirmation from the White House that 104% tariffs on imports from China go into effect at midnight, and weak demand for a $58 billion 3-yr note auction; that was particularly concerning;
*SPY closed at a fresh 6-month low, with the initial rally unable to hold; technically, there is no support until downside at $440 is reached; on our adjusted chart, we could see some support form at $490; if the market can muster a rebound with a close above $506, we could see a rally attempt to take the market back up to the 200-DMA and $565 resistance (S1);
*The MACD signal continues to be extremely extended to the downside, at record levels since the Covid crash;
*Daily Dark Pools flows were somewhat better than yesterday, as there was more buying coming across from institutions, at least in the top 20 stocks of the S&P 500; the Dark Pools index for yesterday stood at 44.9%, versus 37.8% on Monday; the early morning bounce is partially responsible for this improvement;
*Gamma Exposure is still predominantly negative across most of the top stocks and major sector ETFs, but has just flipped positive for SPY itself; this positive flip is measurable across all option expiration periods: short (3-4 days), medium (68 days) and long (370 days);
*From a Sectors perspective, which is also relevant for overall breadth, the options market is pricing in far more upside than downside in the short term (around 9 to 10 days to expiration);
*In the chart below, we can see the percentage gain or loss for each sector to the near term call and put wall; those form around price points where traders have built large concentrations of positions and have the most open interest; in other words, it’s the likely level at which options traders will consider taking profits;
*The average put wall distance is -4.35% across these sectors; the average call wall distance is +15.34%, just to give an idea about relative risk and reward; by comparison, on Feb 20, when the market decline started, the average potential loss was -10.67%, and the average potential gain was +5.93%; now we are seeing a starkly different picture;
*For SPY, the call wall stands at $580+ in the short term;
*In other words, it does look like sellers are exhausted, at least for the next week; for the medium term, the outlook from the options market is much more balanced; average upside is +20.3%, while average downside stands at -14.4%; this leads us to believe that while a short term rally is likely, it will mostly be a technical affair and an occasion to reduce risk into - not chase;
*Increased selling in mega caps and chipmakers was another driving factor for yesterday’s decline; Apple (AAPL, -5.0%), which had been up as much as +4.9% at its session high, and NVIDIA (NVDA, -1.4%), which had surged as much as +8.4%, were influential losers from the space;
*Chipmakers were relative leaders yesterday, another interesting development; it was TSLA and AAPL which were the relative laggards among the top 10 S&P 500 stocks; an FT report stated that carmakers are holding cars at ports amid tariffs;
*The Treasury market also exhibited a sharp turnaround, in a perplexing move; the 10-yr yield, which settled 11 basis points higher at 4.26%, moved as low as 4.17%; higher yields suggest worries about inflation are overtaking worries about a recession; it is a worst case scenario for stock-bond portfolios, as there are little places to hide if every asset generates a negative return;
*The only economic data was limited to the NFIB Small Business Optimism Survey, which dropped to 97.4 in March from 100.7;
*TLT fell another -1.89%, on top of the -3.02% decline a day before; a megaphone pattern is starting to form in short term technicals, a sign that the market really has no idea where to price bonds in the future; on one hand, bonds offer a safe haven and a guaranteed yield; if eroded by inflation, the purchasing power of that yield becomes worthless — this partially explains the incongruent move, and the excellent trading done by Enterprise on Tuesday;