Hey There Income Hunter,
I have been anticipating an extended rally to at least 400 in the S&P 500 Index ETF (SPY).
And I also view any end-of-quarter rally as an ideal opportunity to reset shorts.
However, the internal market indicators from Friday are not supportive of a continuation higher.
SPY internals reveal put buyers on Friday via an increase in negative gamma.
Negative gamma is created when money funds buy puts, leaving their dealer counterparts needing to sell stock to delta hedge their short put exposure.
This now leaves the SPY technicals looking very similar to the move at the end of Q1 …
Today, we will look at the critical Fed pivot signposts to watch for as we head into Q3 …
Forward Looking Economic Indicators
Certain data looks back at previous months, which is not very helpful in determining where the economy is going.
Monday’s data was a perfect example. US durable goods were reported for May, which is ancient history after a .75% rate hike since then.
Next the Dallas Fed reported their Manufacturing Survey findings, which reveal respondents’ comments about what they see happening now and going forward in the business.
Issues focused on included cost inflation, over regulation and Biden’s energy policy. The survey was expected to show a modest rise from -7.3 to -6.5 …
The survey results actually plunded to -17.7 as new orders crashed and employment weakened.
Comments on the survey included …
- Unhappiness in not building relationships with emerging countries to allow us to become less dependent on Chinese products.
- Inflation will remain high until we become self-sufficient in oil and gas.
- Concern over Mexican manufacturers gaining more business in the US.
- Biden is promoting a sarcastic attitude towards the oil industry, which does not help the country in any way
Six month expectations are the lowest they have been since Covid and, before that, the financial crisis …
Third Quarter May Trigger the Fed Pivot
I have been saying for months Q3 could be the turning point for the Fed to abandon the tightening policy.
The probability for that is growing week by week, and the second week in July will be pivotal.
Here is a look ahead …
- This week we will get $130 billion in bond issuance; 2-year (today), 5-year (Wed), 7-year (Thurs). Bond market liquidity has deteriorated badly, so watch for poor results as an indicator the Fed needs to pull back on tightening.
- Next week: Friday payrolls. Previous number was +390,000). A weakening in employment will remove the foundation of a strong labor market.
- Week of July 11-15: Huge week of bond supply 3-yr, 10-yr, 30-yr and CPI out on July 13. The Cleveland Fed issues a nowcast on inflation and currently they are forecasting over 10%!
- Earnings reports throughout the month and investors’ reaction will weigh heavily on the Fed tightening decision, which will be announced July 27.
Bring It Home
Reset your bearish strategies this week.
Q3 will bring a market that will be cleaned out of many put positions that expired on quad witching June 17 or quarter end on June 30.
The earnings reports and even a 9% inflation number will trigger more fear and a possible trip to a new SPY low.
To get those, call 1-888-872-3301 today starting at 9 a.m. and speak to the Option Pit Customer Care Team!
Until then …
Live and Trade With Passion My Friend,
Griff