Max pain market continues...

The Market Ear Picture

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SPX - welcome back to the 100 day moving average

Spooz is up around 4% from Wed lows, hitting the upper part of the short term negative trend line, but the first "real" resistance is at 4100. Note the 50 crossing the 100 day right here. Imagine the pain should we trade above the negative trend line...

Source: Refinitiv

NASDAQ - short term

NASDAQ bounced in the lower part of the trend channel and is squeezing higher. Tepper lows at 12k remains the short term support. First real resistance is at 12600. It is easy to get excited about break ups/downs, but this is a market stuck in a range, so trade it accordingly. Do note the 50 day having crossed the 100 day...

Source: Refinitiv

Tech selling

The crowd has sold tech in size lately. Just in time for the latest bounce. Imagine the pain should we move even higher?

Source: BofA

Bullish AMZN: This analyst is way ahead of consensus

Sanford Bernstein comes out 23% and 59% ahead of consensus EBIT expectations for Amazon in the coming two quarters, the sole reason why it’s their top pick for 2H22. This is even more critical considering op. income beats/misses are the key catalyst for Amazon’s stock performance and FY22 & FY23 EBIT expectations have fallen by ~60% and 50% respectively since Jan 2021. Bernstein: "Granted, we've been waiting 6 quarters for op. leverage to materialize, but in sizing each major headwind/tailwind, we decidedly believe OI leverage is just around the corner" (Bernstein)

Bull case

(i) Fed does its last outsized (> 25pbs) hike in September

(ii) QT ramps up to its maximal caps without any increase in vol or yields

(iii) CPI continues to move lower, accelerating the pace of its declines

(iv) WTI remains at/below $100, but perhaps more critically does not see rapid increases

(v) positioning increases as markets stabilize

(vi) yields remain anchored near-term and decrease as rates vol dissipates post-Fed.

(JPM market intelligence)

Bear case

(i) Fed continues with its outsized rate hike cadence in Nov/Dec, bringing Fed Funds above 4.0%

(ii) QT puts upward pressure on yields, retesting YTD high of 3.47% in 10Y

(iii) CPI remains in the 8% - 9% range

(iv) WTI moves back above $100, in response to either supply disruptions and/or an increase in demand from China

(v) positioning remains light with increases to short leverage

(vi) rates vol remains elevated as Fedspeak is hawkish and uncertainty remains over CPI direction/magnitude.

(JPM market intelligence)

Mighty dollar losing steam

The DXY index didn't even reach the upper part of the trend channel. This is definitely a loss of momentum. 50 day moving is at 107.5, the lower part of the trend channel. Let's see how this plays out from here, but credit where credit is due. Recall what JPM's Nikos wrote last week (here): "Our momentum signals suggests bullish dollar momentum approaching extreme levels".

Source: Refinitiv

Oil - recent laggard

Is the latest move in equities spilling over?

Source: Refinitiv

Bitcoin - the art of trading ranges

Bitcoin remains stuck inside the mighty range that has been in place since mid June. Trading ranges requires a mean reversion mind...

Source: Refinitiv

Please mind the new gap to Real Yields

Real yields continue rising and the gap vs SPX is very wide again. We outlined our bounce logic early this week (here), but CTAs and other late chasers can't afford to think about real rates or anything else, but must continue to chase this market. For now focus on maximizing the squeeze juice...

Source: Refinitiv

Pay attention to the gamma flip

Believe it or not, but SPX is up 4.7% from lows we saw on Wed. The move higher has been violent. One of the squeeze ingredients has been the deep short gamma environment that we have been pointing out on a daily basis. Dealers have become shorter and shorter deltas the higher we have moved. Chasing deltas in an illiquid market is one of the short term "pillars" of this latest squeeze. Note the SPX/SPY flip level is approaching quickly. The "furious" chase of deltas will fade soon, at least when it comes to short gamma dealers. They turn into sellers of deltas slightly higher, although absolute levels of positive gamma isn't large.

Source: Tier1Alpha