The Week Ahead
In my opinion, it was a very boring week for equities, with the S&P E-mini trading in a ~120pt range for most of the week. 4080 & 4100 bids were extremely strong. I do not expect them to be so strong in the week ahead. Volume was still pretty thin last week as we had a bank holiday in the US on Monday followed by two days of bank holidays in the UK on Thursday and Friday. This week I expect sub 4000 to be explored. Why? We could not surpass 4200, VIX remains low as does VVIX and the narrative remains the same. Seasonality could play a part this month as June is historically the worst month for stocks during a midterm year, PE ratios continue to compress and Price to Sales is only just getting to the Dotcom bubble levels. Just another comment regarding this month, this June Op-Ex is massive with $3.2tn in options expiring. I do not see the recent turnaround in stocks as a change in the narrative it mostly seems a bear market rally/shorts covering. I expect this month we will explore below 3800. The DXY looks like it wants to head to 105 and by the end of the year, I do not doubt that EURUSD can reach parity. Usually, there is a strong correlation between S&P and AUDJPY, however, it seems there’s a disconnect between the two right now as JPY loses ground and there is a stronger correlation between EURUSD/SPX.
What is bullish right now? Not much. Bloomberg put out an interesting chart titled “Money Burners” which is the number of money-losing companies in the Russell 3000. This shows a steep climb from 2020 to 22 but has aggressively accelerated this year.
I saw an interesting chart from JPM over the weekend which was titled “Exchange-traded Call Option Buys at Open minus Sells at Open for Costumers with less than 10 contracts for options on individual equities” (the chart stopped week ending 27th May 22) - the graph was nose-diving and the small option buying which was at obscene levels in 2021 has disappeared.
Some levels to watch on ES this week are 4200, 4137, 4100, 4080, 4000 & 3985.
ES weekly close-to-close vol bands based on 12w historical vol:
2 SIGMA UP 4381
1 SIGMA UP 4244.5
1 SIGMA DOWN 3971.5
2 SIGMA DOWN 3835
Some things to add to your watchlist - are AUDJPY, EURUSD, EPOL, and LQD.
Both fundamentally and technically speaking nothing attracts me at this point. I do like BMY here for a move to 80 (now 75). SUN (now 42) for a move to 48. Also, DDOG (now 105) down to 80.
This week I opened a large short position in the FTSE 100, there’s a huge disconnect from reality with the FTSE.
Oil remains strong, my short position last week was profitable but for now, I have no position. It looks like oil will explore its 52w highs this month. I still don’t believe that the summer demand will come. Economists say it every year. Consumers are struggling to get food on the table and fill their cars up, the last thing they will be doing is going on holiday.
Past few years have been pretty crazy if you take a deep breathe and think about it… a pandemic, a war in Europe, global inflation. I await for a catalyst to turn this around but for now it looks like we will continue to sell.
See you at Globex,