6/5/20 MARKET CLOSE & WEEKEND Update - Consolidated Analysis

This is my singular thread that encompasses all areas of review for the day in the Hunger Markets.

PRIMARY MARKET REGIME CURRENTLY IN PLACE:


EQUITY NIRVANA

What this means: Robots/OTFs/Pensions are buying the dip until they aren't. Don't fight it until it breaks regime.


When could this flip regimes: $3090 SPX is the primary (larger GEX flip as of Friday close at 415PM) and $3130 is the warning shot.


This has been the greatest rally in shortest period of days in SPX ever, that just piled it on again on Friday with the most (technically being defined as 'misclassification error') inaccurate and since redacted (i.e. this morning's Washington Post article) jobs report in US history...oops...


They typically wait to redact the jobs report until the next month (if you have never paid attention, this is a report that is 'revised' every month when the next months report is provided like clock work and is always revised down for those counting at home). Ben Hunt wrote a series of articles on how much of a farce the jobs report is but this one..."oh my f$%k" as Quoth the Raven is keen to say.


Here is the BLS manager this morning:

TODAY'S ACTION:


VIX and VXX got the Mortal Kombat finishing moves done to them on Friday... VIX -5.00% and VXX -5.42%

  • UUP looks to be forming a bottom on large volume +0.19%

  • TLT down hard but closed well off the lows and finished -0.71%

  • SPY bulls just running wild +2.56%

  • QQQ new ATH +1.98%

  • IWM just savage +3.87%

  • SMH sold off late but new ATH +2.36%

  • FAANGs aallllll GREEN

  • HYG +0.94% cannot be stopppppeeddd

  • XLF just killing it with the squeeze of a lifetime last 5 days +3.72%


J-ROME AND THE MANUCH AT THE CLOSE ZOOM CAM: ATH in NDX and coming soon with SPX so...they pulled it off...markets are 'functioning properly' as J-Rome likes to say aka only going up...

There are two things I see here:

  1. A equity nirvana cycle in full motion that has to be respected

  2. A potential miscalculation by what seems to be everyone is potentially in play that could be consequential again like late Feb

Speaking to #1: There is no doubt that we are now extended and are overbought. But the equity nirvana cycles have to be respected in the sense that they can remain overbought and/or the dips are quickly gobbled up. This can easily perpetuate higher as there is still some squeeze left in the shorts up to probably 3250 SPX with GEX being so positive right now. Can it get to a new ATH, sure. Technically speaking NDX can extend way higher after a pull back if it wants to. But we won't know any of that until there is an attempted 'correction' which may or may not come right here. What is pretty important to note is that the VOLS complex is now flushed below major levels and has magnets lower that should get filled now. This implies more gorpy upside until there is some life in VOLS again, which there isn't any right now.


Speaking to #2: There is a complete and utter miscalculation for COVID19 potential resurgence b/c of the mass social gatherings of the last 10 days. There has been millions and millions of people who have completely ignored the social distancing that was the #1 priority in the country just 30 days ago to march and protest. The social merit/necessity of such protests is not the issue at hand - the fact that there was and continues to be no COVID19 consideration into these protests/mass gatherings is the issue to discuss. As a result, Arizona has noted that their prime Health Care System is now out of ICU beds due to COVID19 and they are begging the state to intervene (as of Friday night). Florida, Texas, and California all have acknowledged and reported the greatest single day increases of COVID19 since the virus began back in March in the last 3 days. Alabama reported an 80% increase in cases. This is just the US but Brazil has so many cases and deaths as of this morning they announced they are not going to report anything anymore. Effectively, after the suppression of the virus for 8 weeks we reversed course here in the last 10 days. There will be consequences for this. How much will be dependent upon the next 15-30 days as cases begin to materialize and flood the hospitals.


Back in Feb, we were in the same spot. Equity nirvana loop in full effect. Bulletproof markets. The COVID thing was disregarded as something only effecting the Chinese. But all of that was a total miscalculation by all market participants. Then all the sudden the wheels came off - the market flipped - cases were out of control and it all feel apart. Unemployment when that process started was 3%. Today it is 20%. Businesses were flush then (supposedly) and now they are on the ropes/brink and PPP is done in 3 weeks and repayable if not spent on avoiding unemployment claims. We are not where we were in Feb by a long shot and arguably the risks are 5x-10x. This is not sane. This is an insane mispricing of risk here. This is not even remotely disocunting the complete and utter mess that is unfolding between US/China that has the potential (and high probability) to end very badly (if it is not already in the process of devolving as we speak). So risks are EVERYWHERE and 5x-10x worse than Feb before the first round of COVID19.


Markets don't care at the moment though. They are in a nirvana state. This is because we have both fiscal stimulus and monetary stimulus firing at the same time. This has not been the case as one or the other always has been off when the other was on since 2009. So this is the end game of the US financial experiment - both firing at the same time (this is effectively MMT). This can create massive tailwinds if there is nothing major to come onto the playing field in the coming month. Is that realistic to think that nothing is coming to destabilize the economic structures even more than they already are? Can this 2x stimulus induced equity nirvana cycle survive an even worse bout of COVID19 than they first round? There is no way to know. But to discount this as improbable, which it currently is, to me is unwise and flippant.


My take here is to watch the $USD, bonds, and watch the VOLS (especially the long term structures). If they get a whiff of something that is untenable, repricing will commence in short order, fiscal and monetary stimilus be damned, as there are more people in the financial system now (ie Robinhood and day trading growth since March) and more assets aggregated into HY (CFAs I know have been piling clients into this because they consider it FED insured now) means an even more vicious doom loop could kick in (based just on math/physics). If they don't see anything that is too concerning, you will see some pull backs, but they will get bought because of the tailwind of the combined stimulus.


To say this is now fragile is an understatment. Be aware of the game you are playing and don't get caught looking the wrong way at the wrong time. Should things pivot and market dealers/institutions become concerned then the large volume selling could get unruly again - so watch the GEX levels for clues. So, net/net over the next two weeks monitor:

  1. COVID19 cases

  2. US/China relations

  3. $USD

  4. Bonds (TLT)

  5. VOLS (especially 60+ days out)

  6. GEX levels on a pull back/correction (IF one materializes)

This should help you keep you monitoring the right clues in what could be another very fluid situation ahead.

SECTORS BROAD MARKET:

Sector Takeways: Now this is the good old days revisited on a NFP Friday - gold and silver Ghengis Khan savaged with everything else green. J-Rome...markets are official 'functioning normally' as you stated was your objective a couple weeks back.


SECTORS BONDS/GOV/SOME COUNTRIES:

Sector Takeways: Most countries green b/c of FED exported stimilus at the moment. HY feeling amazing. Gov bonds - who wants that in a risk on environment?

SECTORS SOME MORE COUNTRIES & FEW CURRENCIES:

Sector Takeways: All countries green. Everything is good to go.

VOLATILITY:


VIX: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bearish

Internals: N/A

Block Volume: N/A


VXX: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bearish

Internals: Neutral

Block Volume: Neutral

GEX: Negative


VIX/VXX Summary: They came to finish off VIX on Friday and got it sub 25.

VIX and VXX got washed out and there are magnets lower to fill gaps that are hard to believe wouldn't get filled here at this point. Internals are not positive and GEX is super garbage on VXX. What I would like to see is market continue to advance in the coming week(s) towards OPEX but in a crappy gorpy action on low volume with a bottomed and rising VIX so green VIX and green markets. We are not at that place right now.


Barring an event or return of COVID in a savagely rapid way that alters participants risk perceptions, this market should grind VIX here for a week or two as there is zero perceived risk b/c of FED intervention. Is that accurate or true to reality - no. Does it matter - no. What matters is that until the internals change and this shows life, you have to assume it will leak lower and lower to the FVGs left behind.

INTERNALS


TRIN:

Takeaway: All bulls.


ADVANCERS/DECLINERS:

Takeaway: Bulls and bulls and bulls.


200 DMA:

Takeaway: This is surreal chart. Without failing here this is heading straight back up vertically.


NYSE ADVANCERS/DECLINERS:

Takeaway: Break out and headed to new ATH? Just wow.


CUMULATIVE VOLUME:

Takeaway: The greatest 15 day advance in cumulative volume that I could find on the back test today. Ever. JFC.


THE DJT: Trump made his move on Friday:

Takeaway: Came in hot. Obviously the NFP was something he was sitting on as all his prepared remarks where referncing it on Friday's propaganda pulpit (cough presser). Almost as if it had been planned all week....hmmm.....he wouldn't have would he?? No no way. I mean he did say on Friday if we didn't vote for him our 401ks would go down...


ABSOLUTE BREADTH:

Takeaway: This is agnostic of a specific type of price direction by technical definition. So the volatility could technically be implying more price advancement in a highly volatile way - we have to acknowledge that at this point b/c things have been volatile, for bears. If so, JFC get out of the way. I am not sure that is the case here, but I do intellectually have to acknowledge that as a potential.


MCCLELLAN OSCILLATOR:

Takeaway: We are now headed towards rare air if we keep advancing.


INTERNALS Summary: Bulls parading at the close Friday looking at the above internals. Nuff said:

Much more clarity today. Market blew it out of the park. These readings are some of the most bullish of all time. We could see a reprieve and pull back which keeps advancing afterwards here or we could see these crash as they are so absurdly unsustainable moves (was/is this a blow off top of some kind?). We won't know much until we get some pull back action to work with.

INDEXES:


SPY: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Bullish

Block Volume: Bullish

GEX: Positive

Put/Call Ratio: Neutral

Options Visualization: Max Pain

Volatility Metrics: SPY VOL Term Structure


SPY Summary: Blew 312 out the tailpipe. 325 is last resistance above before new ATH. Everything is positive at the moment - even the vol structure is coming down under 30 in the longer term months. Market is fully discounting any future issues and buying the recovery hook line and sinker. Those perceptions will have to change and we will need to see meaningful change in these readings before this would imply bearish bias returning. That doesn't mean it cannot happen, but situations like this could end up being BTFD regimes for a while unless the overall market perception changes to invite sellers to take risk, which at the moment isn't there. Having said that, I laid out my thoughts above as to what could change these perceptions and it could happen in a blink of an eye, so beware going forward as this is not a normal market.

QQQ: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Positive

Put/Call Ratio: Neutral

Volatility Metrics: QQQ Volatility Term Structure

QQQ Summary: QQQ at the top end of the range. Vol structure is coming down on the back end a little and below 30 but short term is still highly elevated. Short term we could/should see a pull back and then we will have to take it from there. Could pull back morph into more? Yes. Will it? We will have to address as it starts.

SMH: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Bullish

Block Volume: Negative

GEX: Neutral

SMH Summary: Broke the line above. Follow through was there. Does it hold the orange line on the pullback? That could be very important to the broad market as a hold. This is now a MONITOR.

DIA: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Positive

Put/Call Ratio: Neutral

Volatility Metrics: DIA Volatility Term Structure


DIA Summary: Dow Jones made a decision. Higher it is in on major volume. Short term VIX is very elevated so we could see/should see a pull back. Having said that, the FVG is above that is going to act like a magnet being this close. Would not be suprised to see that get hit. Pull back (IF) one materializes will be more informative to the intermediate/long term picture.

IWM: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Bullish

Block Volume: Positive

GEX: Positive

Put/Call Ratio: Neutral

Volatility Metrics: IWM Term Structure


IWM Summary: Hit the 150 level but the rear months are coming off elevated VIX and settling into more regulated levels (less long term concerns). Short term VIX highly elevated but GEX super positive so barring something changing big picture, buyers are going to BTFD on pull backs now more than likely at first and try to chew through the 150 level. Hard to see this being a fake out upward thrust and then collapse move - GEX would have to flip immediately. Having said that we will take it day by day and see how this does up here with the 150 level.

BANKS & HIGH YIELD CREDIT:


XLF: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Positive

XLF Summary: Money printer going brrrrrrrrrrrrrrrrrrrrrrrrrrrrr


Banks laid the wood to short sellers past 5 days but still haven't reached my magic $28 level where my short bazooka is waiting. Will it get there? Maybe, maybe not. I would like to see how this coming week looks. This has been a pretty important index and the debt hasn't gone away that is on the books. Have we really solved everything that is lingering out there? No. The selling after the spike open was telling on Friday so may be done already. I hope it makes it to $28 though ... I want a layup.

HYG: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Negative

HYG Summary: Say it together everyone: HY DEBT IS NOW TREASURIES. HY DEBT IS NOW TREASURIES. HY DEBT IS NOW TREASURIES. HY DEBT IS NOW....printing money. We are now in the throws of the pink line. Haven't broken that in 11 plus years of downtrend. Will we now? Would be highly inflationary if we do. I don't see that happening.

TREASURIES, $USD, and PRECIOUS METALS


TLT: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Negative

Block Volume: Negative

GEX: Neutral/Negative

TLT Summary: Hit really hard early in the day and almost fully recovered. Internals are still not looking good and GEX is not that good either. So the Friday action is a good start, but it will take a few more sessions to get more clarity here as to whether this is moving back to a bullish posture. If equities remain risk on, this is going to remain in the doldrums. I think 150 level still could get tested especially if equities don't turn about face immediately.

UUP: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Fully Reset

Internals: Negative

Block Volume: Negative

GEX: Positive

UUP Summary: Market Structure Level is still in play but it looks to have bottomed/be bottoming to me here. This is something to pay a great deal of attention to here in the next 5 trading days. If this does bottom and equities start to stall, that could be a bigger picture signal. As well, this looks to have been a total flush out of weak hands as the volume the last three days...was incredible! That is hallmark trait of flush outs pivoting to turns and then spike up on large volume. I am pretty confident this has bottomed or is close to bottoming at this time. Pay close attention here.

GLD: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Bearish

Block Volume: Negative

GEX: Positive

GLD Summary: This is going to remain choppy with a downside bias for now until the GEX looks a little better and the internals improve again. Once that happens, could be set for another larger picture buy. I would like to see at least the 150 level (may be too much to ask for the 140 level but I am still hoping for it on pull back).

SLV: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Positive

Block Volume: Positive

GEX: Positive

SLV Summary: Heading lower and 15.50 support really important. Below that heading to 14.40 and then 13. If it remains above 15.50 then it heads higher. Lots of work to do on this after the bullish period so I would let the price levels unfold before I jumped back in because this could correct more to fill those downside FVGs which would seem bearish but in fact, would be bullish if they fill and hold.

GDX: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Negative

Block Volume: Negative

GEX: Positive

GDX Summary: Trying to rebound from lows on Friday in the AM but should remain in a downside bias consolidation for the next week or two bigger picture. This could be rangebound (best case) for a little while as it corrects or could head much lower to fill those FVGs (worst case) over the coming weeks. Nothing makes this bearish unless the lower MSL breaks at 21.85.

THE END.



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