Critical information for the U.S. trading day
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A commonly heard battle cry throughout history has been “hold the line,” which is exactly what the S&P 500 (SPX) didn’t do following Friday’s monstrous rally, putting a bull market just out of reach again. Tuesday’s softer setup may not change that.
Maybe those bearish Wall Street voices like Morgan Stanley’s Mike Wilson are just willing it to happen? Data shows investors have been fleeing equity funds, though there are bullish rumblings out there too — Citi analysts are on the lookout for “upside risk” in equities.
One lingering question as summer shapes up is just how long the dominance and shoring up of markets by a few big tech names will carry on. Apple (AAPL) may have offered an early sign of how Big Tech is not invincible with shares softer again in premarket after disappointing some investors with a pricey virtual-reality headset. (Shares were downgraded, see Buzz).
Our call of the day, also from Citigroup, offers insight on when unraveling of the tech trade could really begin. A team led by Citi’s global head of quantitative research, Chris Montagu, pointed out that investors have been strongly overweight U.S. stocks versus all other regions, even cutting some bullish momentum for Japan equities (JP:NIK), up 24% so far this year.
“Positioning is the most extreme in Nasdaq futures where investors also are sitting on very extended profits. This could lead to rounds of profit-taking in the near term,” Montagu told clients in a note on Monday.
As Montagu explains, investors extended net long positions, or bets that prices will rise, in both S&P and Nasdaq futures in the latter half of May. “This bullishness was driven by large-cap growth and caused the Nasdaq to become more extended than the S&P,” they said.
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Pushing into June, the strategists point out that investors have now moderated those net long S&P positions and continue adding longs to Nasdaq futures.
“Not only is Nasdaq positioning the most extended ever seen by the model (going back more than 12 years), but profit on these long positions average 7.6%, which is a level where the probability of rounds of profit-taking increases significantly. The average profit for S&P long positions is small by comparison at just 2.7%.” said the Citi team.
From another angle, Brent Donnelly, president of Spectra Markets and author of “Alpha Trader,” said in a tweet that bitcoin weakness seen on Monday (more below in Chart of the Day) could be a “possible canary in the NASDAQ coal mine at this point,” as he suggested a related play on AI superstar Nvidia (NVDA).
“You could do worse than taking a shot at short NVDA here with equity seasonality turning negative, NVDA in a clear range (and on a huge island — 375/425) + TGA refill, tighter Fed, and continuing QT likely to matter at some point soonish,” he writes.
“Remember, NVDA and bitcoin used to be joined at the hip before the AI bubble and bitcoin used to often move before NVDA. They decoupled as crypto mania turned to AI mania but are still both part of the same broad ecosystem of supertech disruptor etc,” said Donnelly, who offers up the below charts.
Read the whole post here.
Read: What if the S&P 500 fumbles its bear-market exit? What strategists think of the role of tech in this rally.
Stock futures (ES00) (YM00) (NQ00) are tracking lower. The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) is down 2 basis points at 3.658%. The dollar (DXY) is down, notably against its Aussie rival (AUDUSD) after a surprise 25 basis point hike from the Reserve Bank of Australia.
Oil (CL.1) (BRN00) is hovering above $70 a barrel as prices continue to walk back a rally following Saudi Arabia’s pledge to cut production.
Read: Saudi Arabia’s planned oil cut could lead to ‘cracks’ within OPEC+ — but not a spike in gasoline prices
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Ukraine has accused Russia of blowing up a dam near Kherson, potentially causing massive flooding that could displace thousands, threaten ecosystems, wildlife and the stability of the Zaporizhzhia Nuclear Power Plant.
The data calendar is empty for Tuesday.
Apple (AAPL)is pushing lower following a lukewarm reception to its $3,499 Vision Pro headset. D.A. Davidson downgraded shares to neutral, saying any good new from the mixed-reality headset is priced in.
GitLab (GTLB) shares are more than 20% higher in after an earnings report that beat expectations and played up the software company’s AI efforts.
Shares of self-driving technology developer Mobileye Global (MBLY) are more than 5% lower after the company said it was launching a secondary offering of its shares, via an Intel (INTC) subsidiary.
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