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"YOU MEAN A DOWN WEEK IS STILL POSSIBLE??"

A CORRECTIVE / CONSOLIDATION IS THE BEST THING THAT COULD HAPPEN!

(IF YOU WANT HIGHER EQUITY MARKETS!)

Click All Charts to Enlarge

HISTORICAL ELECTION YEAR PERFORMANCE: 2024 was the 3rd best Election Q1 since 1950. Chop continues up ~2.5% April-October. Only 2 losses in the last 7 months of election years since 1950: 2000 (Dotcom Bubble bursts) & 2008 (Financial Crisis).

1 - SITUATIONAL ANALYSIS

This was a week characterized by:

• Data supporting 'No Landing' from a Growth perspective, and
• Disappointment from a Disinflation perspective.

FedSpeak was without exception hawkish as they suddenly realized that all that 'pivot' optimism did nothing but dramatically ease financial conditions and interfere with their 'best laid plans' for a rate-cut and soft landing.

Friday, Nasdaq was down over 2% while The Dow managed to gain 0.5%. Small Caps were almost unchanged by the end of the day with the S&P lagging.

We are moving further into fear territory. This sell-off feels, so far, very well behaved. (Chart Right).

CHART BELOW: A lot of fear across various indicators, but things haven't fully spilled over to equities...yet?

WEEK'S RECAP

• INDEXES: Technically we are now in bear market since we are down over 22% from the prior highs.
• All the majors ended the week red (with The Dow desperately trying to get back to even).
• Nasdaq was down over 5.5% on the week! S&P and Small Caps down around 3%.
• Nasdaq is down for six straight days for its biggest weekly drop since Nov 2022, breaking below its 100DMA as CTA 'sell threshold's' were crossed.
• The Russell 2000, Nasdaq, and Dow are all back below their 100DMA, and the S&P 500 is pushing down towards its 100DMA (having blow thru the CTA 'sell' thresholds).
• The NDX is now pacing for its worst week in over a year (down 6 of 7 weeks) as a complicated technical backdrop (CTAs, lower retail participation, NDX now testing 100-dma, seasonality), sideways earnings revisions thus far (ASML, TSM and even Sheridan’s NFLX EPS revisions were only 1-2% last night), a tense geopolitical backdrop (overnight headlines) and elevated positioning are testing conviction into a busy week of earnings.
• VIX: Soared this week to six-month highs, and credit markets also finally started to crack.
• MAG7: basket broke below its 50DMA this week - the first time since October, when The Fed 'pivoted' and save the world. The market cap of the MAG7 is now down over $1 Trillion from its highs a week ago.
• AI LEADERS: crashed relative to firms 'at risk from AI', plunging to their lowest in two months.
• Of note is that the AI Leaders are perfectly back to their prior peak in 2021 (which was driven by chip demand for crypto mining and COVID disruptions), breaking down to the 100DMA and through the medium-term uptrend.
• NVDA plunged 10% Friday back to two month lows, closing below its 50DMA for the first time since Nov 2023.
• SEMIS: were basically brutally beaten down this week.
• BANKS: had a decent week with Wells Fargo and Morgan Stanley outperforming. JP Morgan is still lagging from the drop on its last Friday's earnings.
• TREASURY YIELDS: Ended the week higher, but not before plunging overnight on a flight-to-quality bid as initial Israeli missiles hit Iran, taking yields lower on the week.
• By the close of the week, the belly slightly underperformed but yields were all up by around 8-10bps.
• 5.00% remains a key level for the 2Y Yield.
• US DOLLAR: Rallied for the second straight week, hitting its highest since early Nov 2023 last night on the mid-east attacks before sliding back.
• PRECIOUS METALS:
• Spot Gold prices spiked overnight Thursday on the Israel attack, pulled back, then rallied up to $2400 once again to close at the highs. Gold closed the week at a new record high...
• Silver soared 3% on the week to new cycle highs (its highest since Feb 2021)..
• Silver has been broadly speaking outperforming gold in recent weeks after peaking at a gold-to-silver ratio of around 92x in January, it is ow down to 83 (still well above the 65x average since 1980, implying silver remains 'cheap' to gold.
• OIL: Despite two major attacks in the Middle East, oil prices ended lower for the second week in a row (well WW3 hasn't started yet). Some knock-on effects from an evaporation of hope for demand-sponsoring rate-cuts also weighed on sentiment as WTI

NOTES:

• CTA group sold $25B globally this week ($9B in SPX) with next week expected to bring another $27B globally (and $10B SPX) in a flat tape scenario. As a reminder the medium term threshold (aka most important) level is 4886 – less than 100 handles away from spot.
• Next week brings 43% of SPX set to report earnings highlighted by META/MSFT/GOOGL (aka $6.1T of mkt cap) reporting on Thurs night...on the macro front, key reports include 1Q GDP on Thurs & March PCE on Fri.

CHART TOP RIGHT: NASDAQ and SOX RSI hitting lowest levels in a while, but as we all know, oversold can stay in oversold mode for longer than most think possible.

CHART BOTTOM RIGHT: The market has seen more Hindenburg Omens than in any year since the peak

CHART BELOW: CSCO analog doesn't look so crazy anymore.

2 - FUNDAMENTAL ANALYSIS

CREDIT MARKETS LEAD

As you are well aware, we are strong believers that Credit Markets LEAD and Equity & Bond Markets FOLLOW.

In the way of a reminder let's revisit what we previously outlined in the Mid-Week Subscribers update for those that might be new subscribers.

The Bond Market (MOVE) and the Equity Market (VIX) before we look at the Credit Markets (CDX) to see what the signals are.

VOLATILITY - MOVE & VIX

It took bond volatility, MOVE, three months to reach more "normal" levels of volatility. This has basically been reversed in a few sessions. The latest move in the MOVE has been huge (CHART ABOVE)

CHART BELOW

Remembering that you don't compare mean reverting to trending assets, the gap between bond volatility and SPX is now simply huge.

The reaction in VIX has been extreme.

Last time we had a similar pick up in VIX was in Sep/Oct. The initial move higher in VIX was accompanied with a 5.5% sell off in SPX.

The VIX eventually surged even higher during the autumn, and the total SPX sell off reached around 8%.

SORTING OUT VOLATILITY v CREDIT MARKETS

Credit protection is up, but far from panic.

While the VIX has exploded to the upside, credit protection, CDX IG, is showing much less panic (chart right)

Compare SPX to the CDX IG and you realize this appears at this stage to be nothing more than just a normal sell off, with little panic.

(Chart Right shows SPX vs CDX IG inverted.

CHART BELOW: The High Yield Credit sector as represented by the "JNK" is currently reflecting nothing more than a consolidation to the 200 DMA before completing a potential final leg up.

This is normally good for the equity markets.

Note below that we bounced off the 200 DMA on Friday which matches the "Hammer Candlestick" in the S&P 500 (see S&P chart later).

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above: SUBSCRIBER LINK

3 - TECHNICAL ANALYSIS

THE HEADLINE MARKET: MAGNIFICENT 7

• We are reaching the vertical lift part of the parabolic (geometric) lift shown by the dashed red line.
• We have intermediate term Divergence with momentum (bottom pane).
• In the short term Momentum has rolled over but hasn't yet decisively broken the Momentum trend line support. (bottom pane).

MATASII CROSS: WEEKLY - CONTINUES TO SIGNAL A MAG-7 BUY

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

"CURRENCY" MARKET (Currency, Gold, Black Gold (Oil) & Bitcoin)

CHART RIGHT: As gold pushes to higher & higher record highs (in USD terms), Real yields have so far refused to play along (right)?? Normally Gold falls when real yields rise and are historically negatively correlated. 

What we believe is that what we are seeing is Gold aggressively discounting a coming collapse in Real Rates which we expect between 2.25% - 2.5%.

CONTROL PACKAGE

There are EIGHT charts we have outlined in prior chart packages which we will continue to watch closely as a CURRENT "control set".

1. US DOLLAR -DXY - MONTHLY (CHART LINK)
2. US DOLLAR - DXY - DAILY (CHART LINK)
3. GOLD - DAILY (CHART LINK)
4. GOLD cfd's - DAILY (CHART LINK)
5. GOLD - Integrated - Barrick Gold (CHART LINK)
6. OIL - XLE - MONTHLY (CHART LINK)
7. OIL - WTIC - MONTHLY - (CHART LINK)
8. BITCOIN - BTCUSD -WEEKLY (CHART LINK)

GOLD cfd's - DAILY

The 3 Std Deviation band for Gold has gone almost vertical with Gold prices tracking it!! Frankly, in over 40 years I don't believe I have seen this technically occur with a 3 Std Dev in Gold? Something is either broken, panic has set in somewhere or there is an "elephant(s)" now playing the market?

NOTE: Gold CFD's have not corrected (below) whereas Gold Bullion has.(GOLD - DAILY (CHART LINK)

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

INTEGRATED GOLD MINERS

We continue to have a close eye on Gold and the INTEGRATED GOLD MINERS as represented by Barrick Gold. Barrick has broken out of its long term declining overhead resistance trend.

It has been pulling back this week as Gold Bullion has. It may be a good opportunity to be adding to your Gold and Silver positions on any real pullbacks.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

US EQUITY MARKETS

Are bank reserves at The Fed still the driving force for reality? (Chart Right)

We saw the reality check from Aug-Oct last year; are we about to get another?

CONTROL PACKAGE

There have FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set".

1. The S&P 500 (CHART LINK)
2. The DJIA (CHART LINK)
3. The Russell 2000 through the IWM ETF (CHART LINK),
4. The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
5. Nvidia (NVDA) (CHART LINK)

S&P 500 CFD

The S&P 500 cfd aggressively led the S&P 500 to its cfd 100 DMA but not yet the S&P 500 cash index (see "Thought Experiment")

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Daily - Our Though Experiment

The SPX put in a massive "Hammer Candle" overnight Friday, touching the 100 day at intraday lows. These are very rare candles when it comes to indexes. Occurring post sell offs they tend to mark a price decline is over and prices will rise from here (See chart right)

Our Though Experiment, which we have discussed many times previously in the way of a projection, suggests we have put in a near term top (or very close to it) and will now consolidate before possibly completing one final small impulse higher OR put in a final Wave 5 of a higher degree.

NOTE: To reiterate what I previously wrote - "the black labeled activity shown below, between now and July, looks like a "Killing Field" where the algos take Day Traders, "Dip Buyers", the "Gamma Guys" and FOMO's all out on stretchers!"

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

STOCK MONITOR: What We Spotted

BOND MARKET

CONTROL PACKAGE

There have FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set".

1. The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
2. The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
3. The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
4. The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
5. REAL RATES (CHART LINK)
6. FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% +REAL % = 2.414% + 2.193% = 4.607%

WEDNESDAY TREASURY AUCTION

Yields fell on the 10Y TNX (below)

Another super strong demand showing for 20yr Treasuries with the USD 13bln reopening stopping through the WI by 2.5bps, the largest stop-through since 2023, better than March's 2bp stop-through and the six-auction avg. 0.2bps. The auction was covered 2.82x, above the prior 2.79x and avg. 2.57x, Dealers were left with 9.1%, beneath the prior 9.3% and avg. 13.7%, with Indirects taking a chunky 74.7%, above the prior 73.5% and avg. 68.0%. After recent heavy selling, the auction was seen as a litmus test for dip-buying appetite, and it has clearly passed with flying colors.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

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