Discussion
I noted on the Economics Journal channel yesterday that XLU had been starting to show interesting signs of relative strength life. Tough to see on a chart, but if you pay attention intra-day it will sell off in the morning but then get snapped up quickly before trending higher over the course of the day. Rates are down and disinflation appears to have taken hold, but this action started with rates ripping into and in response to last week’s hot ADP report.
This action is in place again this morning. Combined with that is another red-to-green reversal in VVIX.
Things feel awfully bullish like SPX can do nothing but go up from here, but sentiment has completely blown out to the upside as discussed this morning (see below), and the Fed is far tighter than is commonly believed (see The Kitty below). This is not December 2010, 2019 or 2020 when the Fed was ramping the balance sheet - this is the complete opposite environment actually. I continue to believe the final blow off to 4600/4700 if not ATHs is in the cards before we head into September/October, but the bull case needs to be checked before that blow off occurs.
Look for Waller to “check” it tonight.