Hey There Income Hunter,

The employment report was a real snoozer yesterday, with the headline number a bit higher but revisions a bit weaker.

I have flagged next week as the big mover this month and I don’t think it will disappoint. 

In the past couple of weeks we have gotten a bear market rally on lower-than-average volume and a VIX that has ground down to the bottom of its range. 

Now it is big boy time when we head into the week of heavy Treasury bond supply. Bond supply has been difficult to absorb recently and bond volatility is in the stratosphere …

We will also get the CPI report that may provide a wake-up call for the Fed-is-in-control believers. 

Today I’ll dig into the technical setup of the indexes and look at potential plays for next week. 

S&P 500 Index ETF (SPY)

SPY volume was super-low. As you can see just below in the price trend section (top) of the graph below. This has been the normal pattern of late.

Since the Fed started its tightening policy we have had relief rallies for a couple of weeks post-Fed meetings and sell offs a couple of weeks prior to the following Fed meeting. 

The probabilities at this point favor a bit of a capitulation trade into the July 27 meeting. I think the Fed wants that to happen and I also think upcoming earnings reports will disappoint. 

SPY implied volatility is sitting right at the bottom of its range and it is also trading at a discount to historical – which is usually a good time to buy put strategies. 

iShares 25+ Maturity Treasury Bond ETF (TLT)

TLT has already started its sell off after feeling a lot of heat from a European bond market that has been getting hit of late. 

I closed a TLT put spread I had on this week for a 50%+ gain … but to be honest the steep drop this week surprised me a bit and I was hoping to add. 

I would definitely reset a bear strategy on any retest of the 50-day moving average just above at 115. Next week will see Treasury auctions – 10-year bonds on Wednesday and 30-year bonds on Thursday

Bonds had one sharp rally but have since failed to hold the 50 DMAand supply should weigh heavily on TLT. 

Bring It Home

July is the month we should see confirmation of an earnings recession and an economic recession. 

Probabilities also favor getting some damaging news on defaults and/or bankruptcies … 

With bond volatility closing the week at its highest level since 2008, the VIX is due for a spike, as well, and next week’s agenda provides the foundation for it. 

Have a great weekend and as always …

Live and Trade With Passion My Friend,

Griff