What's up, Trader's Edge?
Hope everybody had a wonderful Easter or a great Seder dinner over Passover.
(To watch Monday's video replay, tap this link.)
Monday brought something we haven't seen in over a month: the S&P 500 (SPY) closed above its 21-day moving average for the first time since February 26th. That's more than a month below that blue line, so this breakout carries some weight.
I think it points toward genuine hopefulness in the market. We've got CPI and other major economic data this week, but really, it's all about Iran. President Trump has set a Tuesday deadline, and after that we'll have a real idea where this is heading.
The market is handicapping the potential for a peace deal at a higher percentage than currently appears likely. But markets are typically optimistic and continue to be so.
Nasdaq (QQQ) showed pretty decent strength Monday as well, though it didn't close above the 21-day. Keep an eye on that. I think we could see Monday (obviously already happened) and Tuesday potentially see the market meander higher with a little bullishness before we figure out what's happening Wednesday.
Why the Russell Is the Real Winner
The one index that looks genuinely strong is the Russell 2000 (IWM). It's done better than the rest of the market and had a much stronger day than I think a lot of people realize. It's bumping up against the 100-day moving average and looks like it wants to pop over. We might see that Tuesday.
The laggard right now is the industrials, and that's because they're heavy in energy. Energy Select Sector SPDR (XLE) looks like it's about to roll over and die. It's bear flagging and not rallying even with oil continuing to go up.
There are some interesting patterns in oil. The May contract for WTI is around $114, but if you go out to November, that contract's in the 70s. They're pricing in big backwardation with some expectation that oil begins to flow normally in the next three months. That would explain the structure, but there's no guarantee that's going to happen.
One thing to be aware of: while we're in backwardation, that's actually a little bullish for United States Oil Fund (USO). You could see USO meander higher here until we get some normalcy.
The Bond Squeeze Nobody Saw Coming
Here's something big: bond option prices got absolutely smoked the last couple days. Meanwhile, bonds appear to be flatlining. I think we might be heading for a squeeze here.
iShares 7-10 Year Treasury (IEF) and iShares 20+ Year Treasury (TLT) both look like they're maybe about ready to get a pop. If they do, that's going to be extremely interesting for the market.
VIX closed at 24.17. Look at this VIX futures term structure: we are backward, but we are flat. Actually, the front end out to June is starting to show a little bit of contango.
We still have the cash index above everything, which shows we're still in a state of confusion. There's still a lot of fear out there. But for the first time in some time, we're seeing a little bit of potential breathing.
The Boring Stock Group That's Quietly Winning
Now, the stock sector I want you paying attention to this week is going to surprise you: railroads.
Since March 20th, rail has had a pretty steady run higher. Here's Union Pacific (UNP), CSX Corporation (CSX), and Canadian National Railway (CNI). I saw a lot of bullish flow in Canadian National Railroad over the 50-day for the first time. All these charts look great.
I'm wondering whether we're about to get a pretty nice pop in railroad stocks. Is the offset between fuel costs versus how much fuel they're going to be transporting maybe a major factor here among the major railroad companies?
It's kind of a boring name, not the one you'd be thinking of. But under the radar, we're starting to see some real strength in rail. Keep an eye on that.
Looking ahead to this week economically: we have durable goods Tuesday, Fed minutes Wednesday, PCE and personal income and spending Thursday (going to be a big drop), GDP revision, and then Friday we get CPI.
There's a lot of inflation data, and that on top of what happens Wednesday is going to drive markets.
Speaking of Wednesday, Voz is kicking off her 72-hour Wealth Summit.
If you haven't registered to join, you should.
It's absolutely zero cost.
If you're watching me on YouTube or social media, just go to optionpit.com to get registered.
Click the link and join Voz, Hannah, and maybe a touch sprinkling of me in this 72-hour Wealth Summit starting Wednesday at 9:30 AM Eastern Time.
Your only option,
Mark Sebastian.