“’Thanks to the aggressive words from the Fed over the past few weeks based on guidelines led by the Chinese government, risk prevention is paramount, ”said Michael Cuoco, Head of Hedge Fund Sales for Metals and Solids at StoneX Group. “The stimulus measures from the central banks helped the markets gain momentum in spring 2020 and now there is a small macro reset”. ‘ ”

– Bloomberg, June 17, 2021

The biggest surprise last week, as measured by the bond and commodity markets reaction, was the Federal Reserve’s dot-plot projections following Wednesday’s Open Market Committee (FOMC) meeting, which forecast two rate hikes in 2023 as inflation expectations collapsed and investors from stocks like commodities and financials pushed into bonds, which helped propel the recently lagging tech stocks higher. Federal Reserve Chairman Jerome Powell stressed that these were only projections, which led some media commentators to wonder why such scatterplots should be published when the forecast should be viewed with caution.

Regardless, the market’s reaction to the forecasts and Powell’s comments has been that the Fed sees more inflation risk compared to previous meetings, potentially contributing to a “macro reset,” a hedge fund official explained. Expiration week can exacerbate volatility in certain stocks and sectors so that remains to be seen.

“… tThe all-time closing high of the S&P 500 Index (SPX – 4,247.44) in early May of 4,232.60 remains important in the short term. After struggling to overtake these levels early last week, trading sessions hit new record closing highs on Thursday and Friday. But Friday’s intraday low was back below 4,232.60, which means those closing prices are barely convincing breakouts … In terms of the open-interest configuration of the SPDR S&P 500 ETF (SPY – 424.31), that’s the big call Open interest on the 425 strike – which is equivalent to SPX 4.250 – catches my eye. Most of these calls were bought to open, which means that if the SPY stays below the 425 strike through Friday, there will be sales of S&P futures related to this call open interest, leading to expiry headwinds for Shares leads. “

– Monday morning outlook, June 14, 2021

From a broader market and price action perspective, there were few surprises during the expiration week. As I observed last week if the S&P 500 index (SPX – 4,166.45) stayed below 4,250 or the 425 strike on the SPDR S&P 500 ETF Trust (SPY – 414.92) as we approached decay The broader market will face headwinds related to the gradual settlement of long SPX futures tied to calls bought on Strike 425 in June. At the close of trading on Tuesday, the SPY was back below the 425 strike after closing just above it on Monday, June 14. The low on Friday was followed by a steady sell-off.

If sellers emerge and push the SPX back below the May closing high, the potential support is between 4,170 and 4,190, or the lower bound of the November channel plus near the 50-day moving average of the SPX SP. “

Monday morning outlook, June 14, 2021

In the first five minutes after the market opened on Friday, sellers pushed the SPX into an area of ​​potential support from the lower bound of a channel launched in November and its 50-day moving average. The latter marked lows on a closing basis in three of the last four setbacks this year. After the lower gap in the morning, the SPX stabilized on the support well into Friday afternoon.

The bearish “tri-star” Doji pattern that surfaced on the SPX in April is something that continues to be noticeable given the apparent loss of momentum from late March to April. In other words, since the bearish “Tri-Star” Doji pattern was completed on April 28, there has only been a maximum of 72 points up versus 120 points down.

It took six to eight weeks for the index to fully recover from similar bearish patterns in January and February. The bulls have a glimmer of hope that we are closer to the back end of the bearish impact of this multi-candle sell signal as this latest bearish pattern of the “Tri-Star” Doji surfaced nearly two months ago. Coincidentally, the pullback on Friday was near the SPX closing times in late April, as you can see from the yellow line segment in the graph below.

Unless the SPX is (as in the past) after Friday’s close below the above channel and the support of the 50-day moving average (the first significant close below both since the 4th and 4.131.

In addition, 4,056 is about six times its closing low in 2009 and 4,131 is around 10% above last year’s closing price. Between these levels lies the roughly 4,100 century mark when the SPX broke above its channel in early April and the less popular 80-day moving average that marked its low in early March.

Given a perceived shift in the way the Fed is monitoring inflation risks, one could argue that the SPX will spend an extended period below its channel, but time will tell.

When buyers show up, the first potential resistance area is between 4,193 and 4,212, or the lower bound of its channel. The second area of ​​resistance is between the early May closing high at 4,232 and last week’s closing high at 4,255. For what it’s worth, the candles look very similar on Thursday and Friday May 11th and 12th, which was the last time the SPX closed below the lower bound of its channel.

MMO 621 1st

“‘Another slowdown in bearish sentiment from a few weeks ago could finally push the (Nasdaq 100 Index) NDX above the elusive 14,000 level this week. In fact, the price move around the 14,000 level since mid-February is similar to the NDX’s behavior around 12,000 in late August to November 2020. If a breakout above 14,000 occurs, the next hesitation could be 14,176, which is about 10% above the NDX’s 2020 close. ‘”

Monday morning outlook, June 14, 2021

While it wasn’t a big surprise, the Nasdaq 100 Index (NDX – 14,049.59) passed the 14,000-year mark last week, according to my comments. The real surprise might be that this happened in the context of SPX weakness, as part of a rotation in technology than bonds and a massive shift out of reflation deals.

However, as you can see at the top of the chart below, the level that coincides with around 10% above the 2020 closing price marks the high of last week. But the NDX still managed to close above the formerly elusive 14,000 mark every day last week, as opposed to the one- and two-day closings above that level in April, which were quickly greeted with selling activity.

MMO 621 2nd

With the NDX trading in a resistance area and the SPX seeing a disappointing close below an initial area of ​​potential support last week, it is fair to ask who will be driving these indices through resistance and support respectively.

I ask this question because fast money traders are at or near an optimistic extreme. For example, a weekly survey by the National Association of Active Investment Managers (NAAIM) found a score of almost 99 or fully invested. There is room for these managers to take a leveraged bullish position, but one wonders if they will after the market fell shortly after being long in late April.

Additionally, according to the charts below, option buyers are approaching bullish extremes on both the NDX and SPX components as buy-to-open put / call volume ratios near recent record lows. Relatively low scores usually precede short-term weakness, but the direction of the relationship is also important. The bulls direction currently prefers but consider the color of the waving flag yellow which means caution now, especially when the Cboe volatility index (VIX – 20.70) closed above 20.14 or half its 52- Weekly closing highs of 40.28 inches October.

MMO 621 3

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