S&P 500 Up 126 Points As Powell Nixes .75% Rate Hikes
We leaned bullish yesterday, but this was an upside explosion.
Our View — Who's Going To Buy Our Bonds?
Who in the world is going to buy US bonds? Not the world's largest holder, Japan, who has been selling for months.
According to BMO Capital Market's recent data, the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months. While that may be small change relative to Japan's $1.3 trillion stockpile, the divestment threatens to grow.
That said…who’s bonds are better bets than US bonds? The German 10-year is still under 1%, while its 1-year and lower duration bond yields are still negative, so it’s a mixed outlook in fixed income.
Last week, @Macrocharts posted this AAII Bull-Bear Spread on sentiment as it neared historically low levels. That didn’t (and doesn’t) guarantee a low or a sustainable bounce from here. But it is something that generally accompanies those events. It’s just something to keep an eye on.
I understand that there are a lot of folks that are watching their stock investment accounts take a beating. Like always, the question is, “is this the big one?”
I don’t think so.
However, we are in a full-fledged pain game and there is more pain to come. Let’s be realistic. At the high, the ES was up more than 620% from the March 2009 credit crisis lows and gained 27% in 2021 alone (after ending the year higher by 16% in 2020). So some air had to come out of this at some point. Is it painful? Yes. Is it going to last forever? No.
However, there is too much uncertainty for any sustained rally right now.
Our Lean
I could not be happier about yesterday’s upside move as the ES surged following the Fed’s decision. Yesterday’s “gut feeling” was for a move higher up to 4250…but it went a lot further than that!
This is the section where Danny lays out his Lean on the market and his approach to today’s trading session.
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Danny Riley is a 39-year veteran of the CME trading floor. He has run one of the largest S&P desks on the floor of the CME Group since 1985.
Daily Recap
Yesterday, it was all about the Fed. The ES opened at 4176.50, upticked 3 to 4 points, then sank 37.50 points until it bottomed in the low 4140s at 11:30. From there, the ES powered higher by ~44 points into 2:00 when the Fed announced its 50 bps hike.
The ES shot up 21 points in 90 seconds and fell over 37 handles a few minutes later. From 2:00 until 2:35, the ES traded in volatile 20 to 40 point swings until it bottomed at 4146 and then exploded higher.
The ES rallied for more than an hour straight, tacking on 156 points going into the 3:50 MIM reading at ~4298. The cash imbalance showed $2.2 billion to buy and the ES inched up to 4303 before closing at 4297 at 4:00 and settling at 4286.25 at the 5:00 futures close.
In the end, the ES climbed 126 points or about 3% on the day. In terms of the ES’s overall tone, it was one giant buy program in the afternoon. In terms of the ES’s overall trade, volume was solid at 1.72 million contracts traded.
Total Range: 160.25 points
H: 4303
L: 4142.75
Technical Edge —
NYSE Breadth: 87.7% Upside Volume (!)
Back-to-Back weeks of 80%+ downside volume
NASDAQ Breadth: 82.2% Upside Volume (!)
VIX: ~$26
The VIX is calming down and the market reacted well knowing the “worst of the worst” is not coming from the Fed. There are still some long-term and intermediate-term questions and concerns, but for now, the markets reacted well to the Fed.
The move sent the S&P and Nasdaq exploding higher.
The former climbed all the way up to our upside targets near 4300, while the latter tacked on 350+ points after going daily-up and rallying to our range in the 13,500 to 13,700 area.
The question now is, will this be our low to work with and how long will it last?
Game Plan — S&P, Nasdaq, Bonds, Individual Stocks
Selfishly, I’d love to see another 80% upside day. Realistically, I know how difficult that will be to achieve. If the market could do it though, the bulls would gain some meaningful momentum.
Personally, I like that the market is coming into the session under a little bit of pressure. It’s easy to navigate than a big gap-up that loses all of its steam in the opening 30 minutes.
S&P 500
“Keep in mind, we could fly all the way up to 4300 and that only gets us back to last week’s high.”
We hit this area yesterday and it was clearly resistance. Last week’s high was 4303.50 and so far, this week’s high is 4303. However, the ES closed above the 10-day for the first time since April 20th. Bulls want to see that observation remain true.
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Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Bold are the trades with recent updates.
WMT — First target is …[premium only]
MCK — (I Missed MCK). For those that didn’t, $320 was the trim spot from the setup earlier this week. → Now …[premium only]
Relative strength leaders (List is cleaned up and shorter!) →
AR — booming to new highs.
…[premium only]
Economic Calendar
