Hey There Income Hunter,

 

It didn’t take long on Monday, after the markets opened higher, for another record-worst economic number to again douse the flames of a hot relief rally. 

 

This time it was the National Association of Home Builders report on the second worst drop in the history of its housing index. (It was also the seventh-straight monthly decline in the survey, which asks respondents to rate market conditions for new home sales currently and over the next six months.)

 

It’s not surprising, though. The housing market is getting hit from higher mortgage rates, a huge pickup in inventory and a fast-slowing economy.

 

It’s hard to believe we can have a second housing crisis in a mere dozen years …

 

But then again we are talking about the worst central bank in history.

 

Today we’ll run through the market internals as we head into the VIX expiration on Wednesday and what to watch for the rest of the week.

 

Earnings to Date 

 

We’re just getting started but the banks are very important as they’re a scoreboard for systemic risk. 

 

The yellow circle shows that, after just 33 firms reporting, earnings have come in negative quarter-on-quarter … 

 

 

The guidance on banks so far is cautious and most are delaying stock buybacks, another worrisome sign. 

 

SPX Internals 

 

The VIX looks like a cheaper way to play for a down trade into the Fed meeting next Wednesday. You can see in the chart below that into the April and May VIX expiration, the VIX traded off into expiry and then rallied out of it. 

 

I think we can see a similar move this week and it may have already started. There are many stocks and indexes where implied vol is trading below historical vol. That is an indication that put options are on the cheap side. 

 

I still think we need to see a capitulation trade that takes out the lows, so now is the time to capitalize on the cheap vol. 

 

 

The Data Watchlist

 

From the list below, the most important data to watch for is housing, initial claims data on Thursday, the European Central Bank policy decision (.50% rate hike expected) and the flash PMI numbers on Friday. 

 

 

Bring It Home

 

In  a bear market traders have to force themselves to sell into a relief rally. The Fed is going to need to see lower asset prices and lower inflation before they pivot back to easing. 

 

Until then, stocks are a sale on rips and Treasury bond ETFs and gold are a buy on dips. 

 

Here is a Trade Watchlist for the next couple of days

 

• Tech rolled over Monday. With rates rising we should see continuation. AAPL had a bearish engulfing candle and could retest the 50 DMA near 143. 

 

• The QQQs failed at the 50-day moving average and should follow-through to the downside below 390. 

 

• IWM set-up is similar to QQQs and TLT closed right at the 50 DMA – and has uptrend support just below. The Treasury bond ETFs are a buy. I like IEF here also …

 

• Whereas the corporate bond ETFs, HYG and LQD failed big time Monday and should see plenty of pressure into poor economic numbers. 

 

As always …

 

Live and Trade With Passion My Friend,

Griff