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Yesterday I wrote about the spot-up, vol-up situation and how investors and managers were FOMOing into the market. Now we have spot down, vol down, and clearly whoever was forced to buy non-stop yesterday has finished their mission. The very aggressive part of the move is likely over.
That does not mean the market can’t continue higher, just that the extreme moves to the upside are now less likely.
The Megacap & Tech ratio relative to the S&P 500 is bouncing off the bottom of its running trend channel. This is also what I am seeing in today’s high-conviction options flow -- very bullish in megacaps, especially the Mag 7, which is likely to continue supporting the indices.
https://preview.redd.it/9r66aecjhqhh1.png?width=1080&format=png&auto=webp&s=6d0e31f5d09b0be874f2d546dbf14501cf8776a9
This is likely to continue supporting the SPY.
Also despite upward earnings revisions, large-cap tech positioning remains only modestly overweight, at the 54th percentile. Positioning still trails fundamentals so its leaving room for a catch-up trade higher. Just careful with leverage
https://preview.redd.it/wqqnjfrrhqhh1.png?width=1080&format=png&auto=webp&s=3764f942b8c823da2bfda6e9413238116c716621
Also supporting the rally continuation case is that as of August 3, on a Y/Y basis, Growth is about 2 standard deviations oversold, similar to where it was in November 2022. This was a v good long-term buying opportunity in 2022, and I’d say that a similar buying opportunity has begun, despite the four-day rally.
https://preview.redd.it/7bncy0jthqhh1.png?width=1080&format=png&auto=webp&s=84a1bceafa6c695bd543e201143538ffd7f7a766
While we could see a move lower as skew normalises,
https://preview.redd.it/6c1dzfcvhqhh1.png?width=1080&format=png&auto=webp&s=9030a25dfc3b83c5c6c87f9556f69dc58e3701cf
I remain constructive and will be looking to buy the dip between 765 and 760 for a short term bounce. If that trade gets stopped out I will be increasing size substantially at 750.
https://preview.redd.it/hv8dow5whqhh1.png?width=999&format=png&auto=webp&s=d5a57137c0f805e1a9be892fdaacca2bbedb0401
For the SOXX, as mentioned yesterday, I will be adding back using the profits from the partial closes at $535 at $520.
https://preview.redd.it/g4r9240xhqhh1.png?width=944&format=png&auto=webp&s=02baad81acb809467812ccf1574d97ef6fd70714
For the Qs $710 is going to be my first entry with a follow=up at $700 as volumes have somewhat skewed to the negative side
I’m adding some thoughts on gold in relation to yesterday’s discussion about the “hidden QE” the Treasury is doing as gold is shoing signs of finally breaking out of its month long consolidation range.
Strong Chinese and central-bank demand is once again, much like in 2022–23, offsetting rising yields and the general apathy from investors in the West.
https://preview.redd.it/8go5kvuxhqhh1.png?width=1080&format=png&auto=webp&s=707d909bf5eb1d96a833dbe9ad3a8ae1f4f446d9
Central banks are still the backbone of gold’s bull market.
In addition to this, gold miners are leading the way in the high conviction options flows I track, which is another positive. The precious-metals complex might be setting up for another leg higher.
There is also a broader macro angle here. When cyclical macro data improve, commercial banks tend to ease lending standards. We see this pattern every cycle - the Fed eases and rates decline, helping propel a cyclical recovery. That recovery then allows for an easing handoff from central banks to commercial banks.
https://preview.redd.it/rlvtngrzhqhh1.png?width=1080&format=png&auto=webp&s=0b6a2345538bd63b7d200fbfb3ce6f8974cea8aa
I’m looking towards $400 on GLD (Gold proxy), roughly 2.5% higher for a start. If i have to set a long-term target for Gold it's >$4700/oz EOY less we get a surprise from the Fed. Options-market volumes are also quite positive while positioning out to 18 DTE remains v bullish.
https://preview.redd.it/wa7u70i0iqhh1.png?width=977&format=png&auto=webp&s=a735493e7244a3883ee53f61a832fa0d340dc518
Watch for U.S. weekly jobless claims and Q2 labor costs and St. Louis Fed President Musalem comments later on in the day