Discussion
VOL: Neutral on the day with VOL red with green equities (bullish) but with VVIX down less than VIX and reversing sharply higher into EOD as it’s done for a few days in a row now (short-term bearish). From a trend perspective, VOL is not yet acting as if a durable equity market top is near, which lines up with the bullish window into mid-January/February 2024.
CDX: Moderately bearish on the day with green CDX alongside green equities. Along with VVIX behavior, this says a bit of a pullback is likely at hand. From a tactical trend perspective CDXs remains decisively bullish, as they continue act very soft; but from a cyclical perspective they remain above pre-December 2021 levels, indicating credit stress continues to bubble beneath the surface.
Breadth: Pretty positive breadth day despite flat equities, and NYSE 50dma breadth continues to bullishly grind higher (SPY 50dma breadth not yet overbought); but defensives outperformed on the day, which combined with the VVIX reversal and green CDXs suggests a near-term pullback/consolidation is at hand. But the trend in defensive sector relative strength is decidedly negative, so this is not a big equity market top call.
FICC: UST curve up on the day likely drove some of the defensive positioning in equities and green CDXs. UST auctions next week are widely touted to be market negative, and with lots of FEDspeak on deck (Waller Tuesday and Powell Friday) the set-up is there for the market to consolidate. But we’ll see. This is a powerful move in stocks, and the fact the USD was negative today in FICC land could be a tell that higher rates are unlikely to stick in the near-term.
Market Character: This is a new component to The CASP, and I think it’s very critical. The market quite literally tells you what it wants to do ahead of time, and right now it continues to power through any and all bearish set-ups. This market wants higher over the next 1-2 months. Sure, it can consolidate based on the above “tells” that it could pullback - but this is far from the type of price action big equity market bears such as myself want to see if a material pullback is going to start anytime soon.
Flows Windows: The market is currently in the post-OPEX “window of weakness”, but given November has been a sharply positive month, the EOM/BOM flows could be material here over the next 1-2 weeks.
SPX Tactical Outlook: VVIX, CDX, and breadth composition suggest some consolidation is at hand early next week, perhaps in response to UST auctions and FEDspeak. But VVIX, CDX, and breadth trends remain decisively bullish, and since November has been a sharply positive month it is likely that EOM/BOM flows drive some form of panicky get-me-in-at-any-price mini-blow off-type price action in equities before a more material pullback is seen in early December perhaps ahead of the December 12-13 FOMC meeting.