Midweek Market Update
Romance or Heartbreak?
As pointed out in last weeks update, the market has had a nice bounce, short dated calls have profited, and now we are back near the 696 level called out. What comes next? We discussed my thesis of the market holding up into Valentines day and now we are here. On one hand, the risk off action seen last week created a reduction of the froth and sentiment. But on the other, the data is still signaling a market where defense is likely the better play than offense right now. The artwork shared above this week is suppose to be around the story of Icarus flying too close to the soon. Now that we have rode this bounce and last weeks lows, is now the team to continue pushing the gas or is this our Icarus moment? There is a valid argument for upside here but my lean remains that a correction in Q1 is still the likely scenario.
Index Review
SPY / S&P 500
Trend:
Key Levels:
Base Case Path:
Need to clear over 697, could see it tag 703 this week. November lows are still a watchout to see again in Q1 if risk off should show up and bring a correction. Longer term not the best buying spot for me. The chart below highlights where it might not be the worse time to be a bit contrarian.
Indicators
Volatility (VIX / Term Structure): watch another VIX crush to end the week but see if it holds this upward trend.
Positioning / Flows (e.g., CTA, options put/call, gamma): Some strong flows coming into tech here and tops out after President’s Day.
Internals: Market has definitely gone more defensive of late, this has been a negative read in the past.
Seasonality & Historical Stats:
Sector Focus
DIA - 50K hit, now what?
Setup: Watch for a pullback, can play this via SDOW (inverse ETF) or puts
Energy / XLE
Setup:
Still remains in the buy the dip mode, expect some volatility in the sector as it has been on a nice run.
MAGS
Setup & Levels:
Rounding Top is still standing out to me, key watch over the coming months, below 62 it can start to confirm pattern.
Dark Pools
Index Flows:
VOO
QQQ’s, still hasn’t tested the previous highs and look at the prints up there
Sector / Single-Name Highlights:
Market Backdrop
Macro Data:
Cross-Asset Signals:
Risk Landscape:
Market Thesis
Potential for strong rally into next Tuesday and then weakness, risk is there for decline to start now so I am hedged and more defensive. Software names such as NOW have bottoming potential but the stronger sectors I like here for the rest of the year are healthcare and energy related. Hope you all enjoyed the content and feel free to restack and consider joining our paid subscribers group where all my price targets and trade idea’s are shared, cheers!
