PCE, Russell Reconstitution Round Out Q2

And say hello to an old friend

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Our View/Lean

I think there has been some pairing of positions into today’s PCE number. It’s one of just a few numbers that can really move the market, but it’s being overshadowed by the end-of-the-quarter rebalance that is supposed to be a very large number for sale. The only thing I can say is the last few days of chopping has not pushed the ES up or down very much. And the lower volumes tend to favor the upside, so when it does go down, we usually see short-covering rallies. 

We are in the end of the R2k Rebalance: The newly reconstituted Russell indices (Russell Global Index, Russell 1000® Index, Russell 2000® Index Russell 3000® Index and Russell Microcap® Index) will take effect on Monday, July 1, 2024, and will remain in place for the next 12-months. The previous indices will cease being in effect after the close of the U.S. equity markets on Friday, June 28, 2024. FTSE Russell will use the NYSE Official Closing Prices to price NYSE-listed securities added to the indices.

On a side note: 

I am off to Chicago to visit my cousin Bobby Riley, my lifelong pal. He just finished six weeks of radiation and chemo for throat cancer. From there I go to visit my sister Helen who has been institutionalized for the last 35 years and if I can, I’ll go see my other cousin Bryan — who had had two brain surgeries after he was in a head-on collision and is looking at years of rehab. 

I always talk about reaching out to family members and friends who we have not spoken to and you know what I say? There is no time like the present. With the 4th of July around the corner and all the parties and barbecues, maybe invite some folks you haven’t seen for a while. I’m sure everyone will be better off for it. 

Take care and see you next week. 

MrTopStep Levels:

Technical Edge  

Guest Post — Dan at GTC Traders

Reviewing Short Opportunities but Winding Out to Cash

Last week as we hit all time highs, we outlined a few ideas in regards to shorting those same all-time highs.

Either go conservative, and wait for a break below the Weekly Central Pivot to signal a break in momentum … 

and then wait for congestion to signal a short opportunity?

Or, if one wanted to play a short aggressively, and could be short 100 shares of SPY, one could sell the .12 delta, July 12, 2024 SPY Call Options for around .75 per ($75 per 100 shares short) …

Both of these ideas have come to fruition rather well.

If conservative? We broke below the Weekly Central Pivot, which could be taken as a break in momentum.  After which, we have established a beautiful area of congestion, or a ‘range’ …

Introductory short positions could then be taken below the 5510 structure, provided there is good volume on the push down in the order flow against trapped buyers.

Or … if one was aggressive, and sold those 565 .12 delta, July 12, 2024 SPY Call Options for around .75 per ($75 per 100 shares short) last week?  With the subsequent break in momentum, that’s an easy .55 of profit per contract sold in a few days time, as those calls are now going for .20 on June 26, 2024 …

So Now What?

We approach the end of the month.

Personally? We run what is referred to as a Heuristically Dynamic Multi-Strat Portfolio.

Sounds impressive right?

We assure you, the actual mechanics are quite simple.  We’re not special or unique.  Probably 20% of the Hedge Funds on the Planet right now are doing something similar.

Briefly put, all this means is that we change the portfolio approach; for where we feel we are ‘in the game’. For both predetermined quantitative and qualitative reasons, we believe that we are in the late stages of a longer term stock market rally; and are in the beginning stages of a stock market bubble.  When this happens, our portfolio mandate switches us to play what Poker plays were call a very ‘nit’ game.  In other words, all of our programs become very … tactically tight.  Smaller position sizes.  Fewer trades, and usually only taking higher probability trades.  We take advantage of higher interest rates by being exposed to 4 Week Bills or 3 Month Treasuries.  Which provides ‘extra padding’.  

And we also narrow our window of time, or periodicity.

What do we mean by ‘narrow our window of time’, or periodicity?

We limit our multi-day short-term trades, to 30 days or less.  By the end of the month?  We attempt to be out of all of our trades, and back to flat cash; and stay there until the first of the month.  Like Berkshire and many others, our primary consideration is to have cash.  Plenty of liquid cash.  That is literally our primary consideration in the current environment.

So we make sure that we have all of our multi-day trades wound down by the end of the month.

This does not mean lesser performance.  At the moment, our short-term trading book is 5.79% year to date.  Not great.  But not that bad either.  More importantly, we are attempting (attempting) to have no months in the red this year.  Thankfully, the markets have cooperated as each month we’ve been able to ‘print black’ by the end of the month.  At least thus far. We continue to look for Higher Accuracy moves, with smaller position sizing, benefit from STIRs (short-term interest rates) and to be back to cash by the end of the month.

So as we move forward?  

We’re not actually putting on any trades today or tomorrow, for those reasons.  We see that we have GDP released in a few hours, and the big release will be Core PCE at 8:30 AM EST on Friday.  

We will evaluate how the market reacts to GDP and Core PCE from our comfortable position and perch of cash by that time. We will have the luxury of watching how the market reacts to GDP and Core, having printed black again for June in the short-term trading portion of our portfolio.

Such that by July 1^st, we can look to put on new positions for July, with a better handle on the economic landscape we find ourselves in, with the new releases.

So until that time?  Stay safe and trade well …

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!