Markets Await CPI
Ohio Spill, The Social Dilemma
Ok after Friday’s selloff in the SP500 to 4061 we have seen a big run up off that low and this bullish move continued into today as the SP500 closed up over 47 handles and are once again in an ear shot of that critical 4182 area:
When we look at this chart we know the bulls are considering this a new bullish trend that began off the October lows. We won’t deny that the chart is shaping up this way. We do find it interesting that we sit clearly in the middle of this trend channel on the eve of the CPI report tomorrow. Here is the forecast from MarketWatch.com
You can see the markets are expecting a 0.3% increase in core CPI with the all important yoy dropping 0.3% to 6.2%. Now we can hear the bears in the equity markets now if the market does rally off of these expected numbers if they do indeed come in at expectation, “How the hell does the market perceive a 6.2% CPI as bullish???”
Now we don’t disagree, we too believe the market participants are not looking at the full picture. However we believe the inflation trend is moving in the right direction and that is what the market players will focus on. However, we take a more cautionary point of view because we continue to see record global bond market inversion. As you know this inversion does not bode well for the future economic prosperity thesis, even if China goes full bore reopen. The fundamentals tell us that any run up in equities will be met with longer term protection selling.
Do not take this the wrong way, markets can rally and rally a lot harder than rational fundamentals can justify, its just the nature of markets, so for now, the technical set up is up in the equities until this recent trend channel is broken. We highlighted that 4182 level in the SP500 futures and that is the bulls target to overcome. The downside to negate this trend channel is a close and move below the 200p Vwap which is down at 3970/3960.
So those are our levels. When we look at option straddles for tomorrow the Friday weekly options and we find that the ATM 4150 straddle is 43.75 for the call and 46.50 for the put for a total price of 90.25 handles or a move outside the 4240.25 / 4059.75. If bullish you can do a 2x1 4150/4200 call spread for 66.00 and the 4150/4100 put spread for 65.75. So you can see there is not much directional bias here from this data. Which tells us two things.
The market is very uncertain as to the nature of this run up and that there is not much reach in regard for trying to get long, nor is there a lot of pressure to sell into it either
The markets seem to be patient for better technical levels such as a move above 4182 or a move back below 3970
All in all things seem pretty balanced and based upon the next new data print, which comes tomorrow! The following DBank chart can confirm this neutrality here and it also confirms the systematics chasing this market:
From what we can see the market is geared for a higher move off of this CPI number, but if the equities do not get this, we would suspect a sharper sell off than a larger rally. To put it another way a favorable print will see a move higher but we don’t feel it will be a blow out over reach but a more slow grind. However if we get the flip side down move, it will be a steeper trajectory and test the new longs resolve.
We wanted to touch on this Nasdaq futures chart where if we do get a move higher in the complex, we believe the target/reversal selling will be near the 0.786 level of 13075/13100 with the down move targeting the buyers down at 11875/11900:
We saw the US bond market with a bit of flatter yield curve action today as the 2Y yields were +0.7bp while the long end dropped 5.2bp:
Ok that is it on the markets front, we wanted to highlight two Linkedin posts we did and we feel these are two very important topics right now. This first post has to do with the Netflix documentary “The Social Dilemma” here is a link to the post, The Social Dilemma/parents be aware
From this documentary we surmised two very important points:
1. That there is zero regulatory guidance for social media companies in regards to protecting our underage population, who eventually grow up (if they don't commit suicide which is up by factors) and dictate future policy? How has the government not regulated them like utilities or telecom companies?
2. Election interference is a crime and a crime against the entire democracy and republic, no matter what your party affiliation is, the truth is not partisan, the truth is absolute and both Democrats and Republicans at least the sensical ones should be appalled that a few hand full of tech oligarchs not only control the flow of information, but rather actually dictate outcomes and policy!
The next post has to do with the absolute media blackout on the Vinyl Chloride spill in Ohio, we are very concerned about this and we think you should be too. Here is the link to that post, Ohio Spill
What we did in this post and considering that there is an absolute media disengagement of the reality of the recent train derailment and toxic chemical spill in Ohio, I decided to use ChatGPT to provide me some idea of the toxicity of such an event. What ChatGPT found was this:
So please do your research on these subjects we implore you to dig and come up with your own perceptions and concerns!
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