Riots, Unrest and SP500 Hits 3 Month Highs

Magnelibra Daily Futures and Cash Treasury Settlement Prices

The SP500 hit a high today of 3065.50 in the June Future a near 3 month high and a level not seen since March 5th. We know this area is the bottom of major technical resistance which lies between here and the Fib 0.768 retrace level up at 3115. As long time traders and market analysts, we know better than to stick with individual prices and have long been better served by denoting a more general area of interest. Well now you know this area and we can consider it 3060 to 3120. The SP500 did settle well off its intraday high settling at 3038.00 +2.5 ticks on the day.

SP500 CHART

As our new readers will come to know, Magnelibra Capital Advisors tracks futures spreads, its a long/short arbitrage model that we have build a career upon. This next chart displays the SP500 vs the Russell2k Index Futures on a 1 to 1 basis. We aren’t quite sure why this trend channel is such a great magnet, but you can see that the SP500 continues to climb but cannot break back into the channel:

The Russell2k has bounced vs the Nasdaq just a little bit, but sits quite near spread lows still. The Russell is still the odd man out and sits currently down some 15% on the year. Well we know diversification isn’t being sought, as we have noted many times, everyone and we do mean everyone hides in the FAANGMs!

Moving over to Bond land its quite curious that the U.S. Treasury curve has been steepening as much as it has lately. We get the long end sell off and its quite clear that the Ultra Bond continues to get pounded vs the 30 Year Bond Future, however are we really going to start to see yields rise? Maybe and that will punish the long end vs the short end which is clearly anchored now by the global central banks.

In the following chart we compare the daily net cumulative change of three of these yield curve spreads, the BOB (30 Year Bond vs Ultra Bond), the NOB (10 Year Bond vs 30 Year Bond) and finally the FOB ( 5 Year Bond vs 30 Year Bond):

The BOB is clearly targeting its widest spread markers from March. Keep this on your trading radars, things may begin to get very interesting in yield land. With the U.S. dollar showing some recent weakness, we aren’t sure if this is just a mere blip in its overall strength or a start of something more. However if the equity markets do start to retreat, we would expect the dollar to strengthen once again.

Speaking of currencies, we need to keep Hong Kong on our radars as well. We know that current relations are already strained with the U.S. and China and with Secretary Pompeo putting this Tweet out earlier today, pretty much sums up the administrations position on the matter over in Hong Kong:

Speaking of Hong Kong, FXStreet put out a very good piece here is a snippet:

We feel investors should keep this on their radar and not only will the currency issue become a problem but the overall geopolitical structure here has been brewing for quite some time. If you get a chance head over there and give it a read.

Well, its pretty safe to say the feathers have been ruffled and the lines in the sand are beginning to be drawn. It has always been our concern when major inflection points in history are reached and this era we currently live in, seems like one of those points. With Trump putting a halt to globalization and readjusting the United States manufacturing capabilities, its not to hard to see why tensions are so high.

Throw in a little bit of full global lock down, a wild virus and massive unemployment and uncertainty, and voila, the stage is set. Now we won’t make an opinion as to what is transpiring around our country and especially in Minnesota, but we saw this tweet today:

We know there was injustice, we know there was death, we know that there needs to be accountability, but we will never condone such acts of sheer violence, recklessness and unrest. Frustration is an understatement and calmer heads from our leaders will be necessary to take action here and formulate a clear plan of attack, before this breaks out all across the country. We are already hearing rumors of planned protests all across the country so please lets pray for cool heads to prevail.

Another item we need to touch upon and one which we feel is an important one. For months now we have been clamoring for some official guidance as to the clear over reach by social media companies and their clear propensity for censoring conservative voices. Yea some may disagree however we think the evidence is rather compelling. Anyhow, President Trump today signed an Executive Order and curiously used the word "Monopolies" when talking about "a handful of social media companies," Well well for those that have been hammering our call for anti-trust provisions toward some of these tech giants, we suppose the word "monopoly" is innocuous! We will just see about that! Could be why the Nasdaq has been weak across the board the last few days as well (who knew and when?)Here is the official White House Tweet:

We feel many changes are coming and the fact that even Mark Zuck himself wasn’t highly opinionated as to this #freespeech Executive Order leads us to believe Facebook is going to be making some changes to its algorithms. Jack Dorsey and Twitter have been a clear target for POTUS and we all need to understand that the Constitution protects Americans freedom of speech and this is a fundamental construct of our Republic, period!

Much like Freedom of Religion, which here in our home state of Illinois, just this week The Thomas More Society represented five Lake County Christian Churches in a complaint to hold Governor Pritzker accountable for his violations:

Given the fact that we track the IDPH data and have done so for a few months, we can clearly see that the “curve” is not only flattened its dropping steadily and we are now in Illinois at our lowest infection rate since we’ve started tracking the data. In fact the infection rate topped out at 21.36% and is now 13.96% of all tests taken, which is a decline of 35%!

The Federal Reserve (FED) put out its weekly H.4 Balance sheet report and this has become a favorite of Magnelibra Econemotion’s as our long time readers know, its the assets the FED accumulates that allows the expansion of nominal real market asset prices. Thus if the central bank is expanding and buying (QE) then that’s all that matters. CAPE, EPS, all worthless in a world by which interest rates are negative and central banks can merely mask and steal future productivity and devalue future labor all at the same time. Bring it all forward in time, then continue to pretend its all real organic savings growth, well its not!

Anyway today the FEDs balance sheet hit new ATHs adding $441.1 Billion just this month alone hitting $7.09 Trillion:

So if your friends and colleagues get that bewildered look as to why in the hell we can have 30 million unemployed and record Nasdaq market highs, well, now you know the truth! However we actually were shocked to see that the SOMA account which the NY FED uses to assist in Open Market Operations actually declined by $7.6 Billion the first tightening in nearly 6 months as the NY FED dumped $27.8 Billion in MBS:

We have May month end tomorrow and with all that is going on with the riots, Hong Kong, the virus, the uncertainty we will continue to keep you up on anything of note that transpires. We leave you with Magnelibra’s settlement prices which are updated to reflect the June-Sep Futures roll in Interest Rate products. As far as the Daily Settlements, you guys get a free look this week, but will only go to paid subscribers after next week. Our proprietary methodology, our clean data and the way we view markets is what we consider unique and special and the amount of time and effort put into it certainly warrants a price to be paid:

We hope you continue to dig and research on your own as we are all in this together and the more knowledge, the more data we have, the better informed we will be. If you have any questions about our Commodity Trading Advisory or the program we run feel free reach out or go to www.magnelibra.com for more information.

-Magnelibra Econemotions

DISCLAIMER: For educational purposes only. This is not a solicitation to buy or sell commodity futures or options on neither commodity futures. The risk of trading securities, futures and options can be substantial and is not for everyone. Such investments may not be appropriate for the recipient. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. Nothing contained in this message may be construed as an express or an implied promise, guarantee or implication by, of, or from the author Michael Agne owner of Magnelibra Capital Advisors. All rights are reserved. We will never claim that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Although care has been taken to assure the accuracy, completeness and reliability of the information contained herein, we make no warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, reliability or usefulness of any information, product, service or process disclosed.