Waiting for clarity
Weekly equity and other markets review 21.11-25.11.2022
General overview: Watching the weekly candle of SPX one would think that nothing happened last week. Although from a big picture view that is somewhat true, I found the daily price action gyrations rather interesting.
Lighter than expected PPI news on Tuesday led to a big gap-up pre-market which met solid supply above 4000. And that is more than logical, given that for the three trading days until Tuesday open, the market was up north of 7%. Matter of fact is, even the following days there was some good redistribution going on with the feeling of someone hitting the bid. Each time though, there was an eventual push to the upside that made every day look dull on a daily return basis.
I know rarely no one sells before holidays. Why would they? A close look at what comes on Thanksgiving week shows one of the best stats for the year in terms of seasonality.
Adding to this, long-end rates continued plunging while the dollar proved to be weak even after the monster shakeout that happened there, which one could argue (and rightly so) was supportive of a bid in SPX.
It feels that the market is oddly strong, giving that it started the week rather extended to the upside at a key resistance level and met two potential catalysts for a much larger selling. The first one was the Russian bombs that killed 2 on the Polish border, which eventually turned out not to be Russian. The second one was Bullard trying to scare the market with higher rates talk. None of them really impressed anyone on the Street.
On top of this, the chart pattern here reminds me of what happened at the exact same place a couple of months earlier in July, albeit room above until next resistance now being much smaller giving where sma200 is.
The only thing that muddies the water from a price action point of view is the behavior of the Eurodollar futures and the short end in rates, which have already started eating from the gains (losses) made on the CPI “surprise” number.
My readings leave me at a tough place as I am having a bearish bias both at a time (seasonality) and price action which are not too supportive of it. Nevertheless, I do believe that the next opportunities that are worthy from a risk-reward perspective will come with the market going down. I would rather wait for the right moment to get selectively short than get long here at this levels.
Sector overview and potential trades: Last Monday I started a new initiative. Every day after the market closes, I post tickers on twitter that have made an impression on me by either being strong or weak vs the general market and other ad-hoc observations.
I believe that it is an extremely efficient and useful for traders to know these. I have decided to share that part of my routine and hope you might like it too. Even if not trading on a daily basis it would still keep one in tune with what is going on. I find myself rereading those at least once per day just to have that information ready to come up in my head at the right time.
If you go through those, you could easily spot some things that came on a repetitive basis.
Last week, the defensive sectors - healthcare (XLV), consumer staples (XLP) and utilities (XLU) were the main beneficiaries. Flows coming into them during the distributive period in SPX, allowed them to outperform. Other names, which proved to be very resilient, were industrials (XLI) and materials (XLB), which are refusing to give the monster gains that they made recently. We have been bullish on those recently.
On the other hand, TSLA, AMZN and ARKK appear to be very weak and meeting continuous selling pressure.
I do not remember seeing TSLA behaving like this in a long time. This is a stock that used to be a great bouncer off oversold conditions, especially after heavy insider selling. This time, however, it has not bounced. And E. Musk has made it clear that all his energy at the moment is going towards cleaning the mess with Twitter, which I assume, is not what the TSLA investment base really wants to see.
AMZN has failed to get meaningfully bid, despite good retail data that came last week and the layoffs announcement, which lifted both GOOG and META considerably off the lows.
As for ARKK, huge fundamental headwind is still on. What I find interesting this time is that some of the other speculative names have been chugging along just fine in the past two weeks. Just look at AMC. If AMC can get a bid and ARKK cannot at the same time, things are not looking too bright for Cathy.
Current positions: I am short DAX (1/3 position)
I have taken off the EWZ long position at a loss in the begging of last week. It did bounce from the horrendous red bar on Nov 10 so I took my chances and got rid of it. I could not argue with price so better decided to get gone before all of the premium in my positions went away.
I also took of what was left of the long SPX fly after PPI data and shorted a full position in DAX. Just could not resist from fading that supreme overextension with terminal rate barely changed. DAX seemed more overbought than SPX, near a clear level around 14500 and the short squeeze, coupled with some weird hopes that EU problems will evaporate just because it is a warm winter, yelled at me to act. I did get lucky for the wrong reasons almost immediately after entering and took of 2/3 of the position. The next day shorted Nov 25 13800 puts against my short futures to get some extra juice out of the trade. The price action since then has been stronger than what I expected, but I am keeping it for now.
Conclusion: We are seasonally in one of the best weeks for SPX during the year. Divergence between sectors continues and some weak names appear (TSLA, AMZN, ARKK) while the general market appears to digest recent gains in an ordinary manner. Better risk reward is to the downside and I am trying to patiently wait for the moment to tell me when to press harder on the short side. I am currently lightly net short.
What seasonal analysis tool is that in the first image?