Dipped and done - next?
Can they lift more?
In this report. ES, GOLD, WTI Oil
The dip was bought on Equities and on Oil.
We have a week of data ahead. Highlights are Wednesdays US CPIs and Thursdays Jobless claims. For me, since the FOMC have shifted their focus a little more to jobless data than PCE and CPI, I will be focused on Friday for Equities trade. Obviously should the Wednesdays CPI come in hot, this would become a much more important event, with the FOMC less likely to bring in any cut should there be a resurgence in inflation data.
The current basecase:
The basecase is for 1 0.25% rate cut in September. We started the year with the market expectations pricing in 7 to 8 cuts this year. Calming inflation data aided this argument somewhat, yet it was batshit crazy to think that once the FOMC had inflation on the run, that they were going to break out the fun-gun again and start to rapidly ease on the market. Each cut is accommodative easing. So why would the committee then run the risk of re-inflating the economy? It was crazy and I will die on that hill.
Now, with manufacturing data slipping further into contractionary territory and weak NFP numbers, Powell will have cause for concern. Refer to the last 2 VWAP Reports. So you are going to hear a lot about how they will do a half point cut or need to do a full point i.e 100 basis points cut this year. I think they will do the 25bps and see how it goes on the subsequent jobs data. Weaker jobs reports through September, Oct, Nov, then more 25bps cuts.
Yen Carry trade liquidation
I believe that a certain amount of the players in that game did indeed liquidate with algos firing off health exits in US assets. However A 15BPS hike from BOJ is nothing to significantly affect that trade. If a change of 15bps is going to wreck your carry trade, then you probably aren't doing it right or you are getting a crap carry. Borrowing at near 0% and only making 2% on your assets. The worst return that the carry trade should be doing is around 5%/ 4.7% with the current yield on US T-Bills. So I think the yen scare is over….for now.
With that all said, we want to remain technical rather than try to get inside the head of bankers or forecast what XYZ will do. In my life and work philosophy, there is only ever what has happened, what has not happened and what is happening.
Lets see what has and has not happened on the charts.
S&P 500 ES U24
Spurred by the Yen carry trade liquidation, ES saw marginally heavy selling from the get go last week. My plan was to sell a pullback to MPVAL $5507 which has not yet setup. THe long concept was from Y-VWAP $5222.25. This was initially bought, however once we bounced from there back to VWAP on the day, the market rejected and wiped out down to new lows on the week. It turns out that the real buyers were at the Q-PVAL $5115 area. The low on the week was just above this $5120. This close but didn't trade price action is something I call sharking. We circle in on a very significant price, but we just dont trade it and the market whips away. So we sharked the level. This to me says that on a retest of these lows, it will not hold support. Watch for this in the week ahead should we revisit last weeks lows.
This week, I’m still looking for shorts against the MPVAL $5508, with a B-Class op to sell at the Q-PVAH $5412. Buying options for a shorter term trade will be at a return to the Y-VWAP currently at $5223.75 area/ Monthly -1 $5234
GOLD GCZ24
Looking for gold to pullback to M-PVAH $2438 and pick up buyers - get long contionuing the imbalance up auction.
WTI OIL CLU24.
In keeping it technical, while we are on the planned strong bounce from the YPVAL area, we will meet some decent sized imbalanced down sellers on the Q-PVAL $77.09. The market is IMBALANCED DOWN of the prior quarters value low. Do not fight against this! I believe that we are in for a broad range of price on Oil, with prevailing direction in the near term to the upside ie. 2 weeks. However we wil wait until the timespreads really kick into overdrive seasonally in September to see some interesting upside.
Okay folks. Sorry to be brief this week, will be updating more for paid subs through the week.
Trading is waiting. Waiting is trading.
