on June 11, 2024

S&P to 5600…Would It Even Matter?

Wednesday remains this week’s focus

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Our View

Even if UBS and Tom Lee are correct about the S&P going to 5600, that is only 5% higher. The PitBull still says the ES and NQ are floating on air and continues to point out how risky the markets are.

As I’ve said, I don’t like fading him because he sees what’s going on in individual stocks — I don’t — but what I see is the same pattern that’s existed since the last quarter of 2023: pullback, get everyone short thinking the markets are going down, make a low and then back-and-fill until the futures pop to new highs.

According to BofA, the last time FOMC and CPI fell on the same day was June 2020, but that was when there was zero borrowing costs…not exactly the same picture as we have today.

Our Lean

There is one lone economic report this morning, the NFIB optimism index at 6:00 am and no Fed speakers. It should be another quiet day, but there could be some repositioning in front of Wednesday’s CPI report and the Fed meeting.

Will we get a 1% move on Wednesday? I’m not sure about that. According to Goldman Sachs, “With $9.5 billion of gamma to trade per 100 bps; dealers have to sell 35,000 ES on a 1% rally and buy 35,000 ES on a 1% selloff.”

So far there has been 11 1% moves up and there has been 10 1% drops. According to Andrew Tyler, head of US market Intelligence on JPMorgan’s trading desk, the options market is betting the S&P 500 index will move 1.3% to 1.4% in either direction by Friday, based on the price of at-the-money straddles. This would come in the wake of the consumer price index report Wednesday and the Federal Reserve’s interest-rate decision that afternoon. If core CPI comes in between 0.3% and 0.35% from the prior month — the most likely scenario is that the S&P 500’s outcome ranges from a 0.75% loss to a 0.75% gain.

According to Stuart Kaiser, Citigroup’s head of US equity trading strategy, investors are preparing for a Fed day stock-market move that would be the largest since March 2023. If month-over-month core CPI tops 0.4%, that would likely spur a selloff across all risk assets, with the S&P 500 falling between 1.5% to 2.5% — but they only see a 5% chance of that.

Our Lean: It’s all about Wednesday, but for today I think we see higher prices. That said, I would not be surprised if we see two-way price action. I may fade a gap in either direction, but yesterday was an ideal set up — a down open and extremely low volumes across the board. I will say one thing, despite yesterday’s rally the MrTopStep imbalance meter has sold $7.2 billion since last Thursday, so someone is selling.

MrTopStep Levels:

How to use MTS levels

MiM and Daily Recap

ES Recap

The ES sold off down to 5338.25 on Globex and opened Monday’s regular session at 5347.25. After the open, the ES traded down to 5341.00 at 9:50, rallied up to 5351.00, pulled back to a higher low at 5347.00 and then made 9 separate new highs up to 5357.75. From the low to the high, 323.5k ES contracts traded. After the high, the ES pulled back to 5365.50, rallied up to a lower high at 5371.25 at 2:10, made a few more lower highs and sold off down to 5358.25 at 2:34 and then popped up to a 5368.00 double top at 2:54.

After the pop, the ES pulled back to 5364.50 and then popped up to 5375.75 at 3:30. After the high, the ES sold off down to 5369.00, made a lower high at 5374.00 at 3:25 and then sold off down to 5364.00 as the 3:50 cash imbalance showed $2.5 billion to sell. The ES dropped down to 5362.25 at 3:53, traded back up to 5373.00 and traded 5372.50 on the 4:00 cash close. After 4:00, the ES sold off down to 5365.00 at 4:05 and for the next 45 minutes, it slow-walked up to 5369.75 and settled at 5369.50 on the 5:00 futures close, up 16 points or +0.30%.The NQ settled at 19,107.75, up 75.50 points or +0.30%, with both closing at record highs.

Bond yields ticked higher, with the 10-year yield closing at 4.468%, gold settled at 2,328.00, up 3.0 or +0.13%, crude oil settled at 78.23, up 2.70 or +3.57%, and bitcoin futures (BTCN4) settled at 70,500, up 165 or +0.23% on the day.

In the end, it was another day of buying the open and pullbacks. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was low: 170k ES traded on Globex and 980k traded on the day session for a total of 1.150 million contracts traded.

Technical Edge

NYSE Breadth: 50% Upside Volume
Nasdaq Breadth: 63% Upside Volume
Advance/Decline: 50% Advance
VIX: ~13

Guest Post — Niels at Tradrr

The Treasuries should be the main market to keep an eye on this week as we head into the double whammy that will be the Interest rate decision in the afternoon alongside CPI in the morning for Wednesday.

Nearly no volume was allowed to trade the highs on Friday after the NFP report as it had a quick blip up followed by an immediate and aggressive blip lower leaving behind some extreme excess placing ZN view into a double distribution balance.

Carrying on with the double distribution it’s made clear where the line in the sand was drawn from 108’10 up till about 108’19 across several weeks and will become an important area to watch for reaction off the FOMC release assuming cuts are still planned sometime this year.

Starting the composite near the end of April where we recognized an excess that gave a lean towards bullish activity would break us from balance into bearish territory should any discussion spark yields to begin to rise through the Fed’s inflation concerns however low chance that may be.

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