The SP500 rejected the upper edge of the Weekly Option Implied Move of 2591, the FOMC Announcement Level of 2585, and is currently consolidating near a previous risk confluence zone of 2578. Earlier today, we identified a zone near 2561, which to us meant a potential floor in price action given identified contingent derivative trading after analyzing all abnormal block trading anomalies since the most recent volatility.
We lean heavily on analyzing what we glean from the public data of players with skin-in-the-game do to drive our insights and models. Therefore, how and at what Levels risk is being priced in real-time by the options markets, as well as the grand-daddy S&P 500 E-Mini, where capital is deployed from, derive significant weight.
We began the week with a possible 60 point range. Interestingly, with 2 more trading days remaining, option markets are pricing in + / - 34 points.
No doubt with the potential catalysts coming from a large number of Fed Speakers and the announcement of US-China Trade tomorrow, we certainly have the possibility to move, despite the reduction in implied volatility to 19.7%.
The recovery in many sectors, groups and underlying securities has been extraordinary from the Christmas Eve lows, with 86% of the SP1500 above its Bollinger Mid-Band. We can see this additionally through a quick scan of top momentum stocks based on rising earnings estimates. Apart from our comments below, we are monitoring these areas closely for propagation to the broad indices.
Evaluating the recent moves across the board in Oil, Bonds, Notes, Dollar, Gold and Copper, point to extraordinarily precarious times for risk assets though. Whether it is in risk-on or in risk-off trades favored bell weather by some is the relationship of Copper / Gold to US 10-Year Treasury Yields.
The news coming out of major Tech Titans such as Apple and Samsung, coupled with the various reports of a major Chinese Economic Slowdown, and the recent price action until thwarted by FOMC Chair Powell last Friday echoes loudly to slowing global economic growth through this highly correlated chart.
As much as I would like to be Bullish, this remains a Bear Market Bounce with a preponderance burden of proof on the Bulls to demonstrate otherwise.
That means recover at a minimum the 200-day simple moving average. In the SP500, that is 5.7% away or a value of 2741.
All the best,