JPMorgan: "This Is Another Unloved Rally For Clients"; Watch For These Key Technicals

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by Tyler Durden
Wednesday, Nov 16, 2022 - 06:50 PM

One wouldn't know it by listening to JPM's pop stock evangelist, Marko Kolanovic, who never saw a dip he didn't buy (god bless his infinite balance sheet), but the second most important trading desk in the US after Goldman has not been infatuated with this bear market bounce. In fact, reading the market summary from JPM's top market intelligence trader, Andrew Tyler, it is clear that nobody was positioned for this rally (as we explained yesterday) and not only did some - such as CTAs - suffer massive losses being forced to cover their short positions, but most funds now have to pivot and start chasing. Below we excerpt from Tyler's latest note:

Yesterday, markets makes took a hit on chatter surrounding missiles from the RU/UKR conflict landing in Poland, triggering fears of an invocation of Article 5. Later, BBG headlines state that a Polish reporter says that most likely it was a remnant of a missile that was shot down by Ukrainian defense forces; Russia denies aiming missiles near the Ukraine-Poland border. The SPX retraced ~67% of its losses, underscoring the strength of the current Equity bid as the Fed pause/pivot-Peak Inflation narrative has become the dominant talking point. That said, this rally is another unloved move in the market, with several clients pointing to a belief that they considered 3900 to be the ceiling in this current trading range.

The PPI print seemingly confirms the CPI print and should give the market comfort that the CPI print may not be a one-off/anomaly. The calls for a Fed stepdown and then pause should grow louder, meaning December Fed is a 50bps hike and then we enter a wait & see mode. That said, December has NFP on the 2nd and CPI is the day before the Fed on the 14th.

Near-term, it feels like the momentum is higher; but longer-term there are reasons to by cautious as it seems unlikely that CPI falls enough to trigger a pause after the December meeting, and we may see further cuts to FY23 EPS estimates.

Our Data Intel team sees another 7% over the next 2 weeks if bear market patterns hold and Positioning Intel tells us that short covering has more room to run. If we do run higher from here, then look for Tech and small caps to lead. While we have seen a rotation from Tech to Financials, we could see that trade paused as folks chase Tech, including the spicier parts, higher.

The JPM trader next shares the key technical levels to watch: