VOL: Bullish action, bearish structure
CDX: Bearish divergence developing again
Breadth: Overall structure is weak. Defensives are trying to bottom, but still not decisively outperforming. To be completely honest, the NDX Group is likely the best source of defensive exposure given reasonable valuations and prodigious non-cyclical growth.
FICC: Had been bearish up until Friday. But once the weak ISM printed, cuts pricing came right back into the curve, and as one would expect gold shot up alongside a higher number of cuts. Waller’s balance sheet speech was a big deal, and I still suspect long rates to start to price in a more hawkish long term balance sheet posture, so I view Friday as a counter-trend move.
Market Character: This is 1995-1996 style price action. Bullish full stop. Non-CASP signals say SPX should correct down to 4500-4600 by May, but I have my doubts. Fiscal stimulus is coursing through the system right now and Treasury/FED liquidity facilities sit waiting in the wings to gobble up any sign of financial instability. Unless the March 12 CPI reading is objectively hot, I have a tough time seeing more than 3-5% downside.
Flows Windows: Currently in the window of strength. But Cem Karsan recently noted that these immutable VOL flows are being front run as they become more common knowledge, and that equities could stair step lower for a bit this month. This aligns with non-CASP signaling for an initial pullback to 4800-4900 in March and overall negative seasonality for an election year.
Tactical Analysis: With basically no real signal of importance coming from VOL, CDX, and breadth, the tactical outlook for SPOOZ is heavily dependent on the interaction of flows and events against the backdrop of 1995-1996 style price strength that could remain good or turn “overbought” in the event of a hot CPI print.
Tactical Outlook: Neutral.
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