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Let’s start with the Korean market sell-off which is being heavily quoted today.
The KOSPI did hit circuit breakers but this is largely a catch-up move following Friday’s sell-off in the US.
https://preview.redd.it/8vbabzvx216h1.png?width=792&format=png&auto=webp&s=7daea1a3f1a2afdcc94ec583a28923bb083aa7e4
The Korean market’s regular session runs from 09:00 to 15:30 KST, or 20:00 to 02:30 ET, with extended trading from 07:30 to 18:00 KST, or 18:30 to 05:00 ET.
US equities trade from 09:30 to 16:00 ET during the regular session, with extended trading running from 04:00 to 20:00 ET.
So today’s move is more about it catching up to what happened in the US after its own market had closed.
Currently the EWY is trading at 2.5% up.
On to SMH. The ETF, which tracks the performance of semiconductors, is likely to get support from market makers at 560 and 550, with not a lot of market positioning below that. The data is calculated based on options market positioning - nodes poining right are bullish, nodes to the left are bearish.
https://preview.redd.it/jc6349i3316h1.png?width=617&format=png&auto=webp&s=2dca81faffadc6996484b81ee67d708f5e728bcc
SOXX is looking a bit more precarious, and if the price falls below 540, we could see a sharper move toward 500. However, that should be a very big support level for the market.
https://preview.redd.it/ol0qkv84316h1.png?width=595&format=png&auto=webp&s=4a8020f9e101f2c551ae2cbb8e855b9109c7e07d
SPY positioning has skewed more to the negative side, and the main support level that will likely slow the selling is at 740. We are still far from a doom-and-gloom scenario. The volatility regime is still negative, which means market makers will hedge with price action, thus increasing volatility.
https://preview.redd.it/egoi9sz4316h1.png?width=417&format=png&auto=webp&s=bbb7685dde154f3cc49fc9dac71d6b6f667d57b8
What needs to be noted today is that the VIX term structure has shifted, but the spike is mainly in the near-term contract, which again supports the thesis that the rally is not over and that this is an overreaction.
Market positioning is leaning positive but not overwhealmingly. Main resistance is $25, but $22 is also likely to subdue price action.
https://preview.redd.it/p6bqqb36316h1.png?width=842&format=png&auto=webp&s=744e1ef123747c937a9a72073e4779c27465a94e
https://preview.redd.it/g9p50nj6316h1.png?width=622&format=png&auto=webp&s=ce834b0e89dfee78dbfddb3dd6320c20c5174b53
The main reason the market sold off was Friday’s jobs report, which was very strong. As we wrote in our Friday daily note, if the report came in too hot, it would weigh on equities. Digging deeper into the report, you can see that the main category adding jobs was Leisure & Hospitality, which added 70,000 jobs. What media reporting is not saying is that the US is hosting the World Cup, and these jobs are likely to be temporary. The headline number might be very high, but it is temporary. The current repricing caused by the very high number is exaggerated and likely to revert.
The main problem is the escalation in the Middle East, again. While this is weighing on sentiment, the Strait needs to remain closed throughout late June and early July for this to become a more serious issue. So there is still time for a resolution. SPR is likely to fall to critical levels toward January, all else equal.
Options market positioning for USO (we use this as a proxy for oil) is looking rather neutral for now with $140 being the main resistance and £130 likely acting as a magnet
https://preview.redd.it/7oy4iz49416h1.png?width=616&format=png&auto=webp&s=3c970743e3f35ac7dc829921d7d48534cafaa39e
Whith this being said, the CPI report is due on Wednesday and until then, risk remaisn elevated. Had the confclit ended, a high number was likely to be overlooked, but now that we have uncertainty rising and if the number surprises to the upside, vol is going to pick up.