Trading charts for Thursday, April 6th
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Good morning and Happy Thursday,
Just a reminder that the markets are closed tomorrow however we still get the monthly jobs report at 8:30am which is very bizarre, I can’t remember the last time we got a major data report like this with the markets closed. not sure why they couldn’t release the report today or Monday instead.
Indexes were mostly red yesterday, although lots of stocks did much worse than the indexes — some of which I owned and don’t love that I got stopped out of them but that’s the way it goes. You need to have risk management when it comes to trading and respect them even when it hurts the most. I finally got the pullbacks yesterday that I had been waiting for in a handful of names so I started 5-6 new positions just above where I thought they’d bounce (mostly 21/23d ema) and unfortunately all of them except 2 sliced right through support and kicked me out of the positions, that was on top of getting stopped out of most of my other positions that I started in the past week. Oh well. It happens, can’t dwell on it although at the end of the day it was annoying to see all the activity and have very little to show for it.
Here’s how the indexes finished yesterday although felt worse than that…
Here’s what the futures are looking like today…
Yields have been falling fast the past few days, I believe we’re approaching an 8-month low on the 10Y yield…
Oil continues to stay above $80, remember that it got below $65 on March 20th and some thought it was going into the $50s but then OPEC announced a massive production cut and oil has rallied 20% in the past couple weeks…
Yesterday was clearly risk off which is evident from the fact that utilities were the outperformer…
We’re back to 60% probability of no rate hike at the May FOMC meeting, I’m curious to see where this number is after the jobs report tomorrow morning…
With the jobs report tomorrow morning and the 3-day weekend coming up it’s possible I’ll start 2-3 positions today to get my exposure up to 35-40% but I don’t want to force anything. I wouldn’t say I overtraded yesterday because I wasn’t chasing stuff higher, I was being patient and waiting for my stocks to pullback before starting positions but unfortunately the market didn’t cooperate.
It feels like the market is starting to worry about slowing growth more than inflation or monetary policy so it will be interesting to see how it reacts IF the jobs number tomorrow comes in lower/cooler than expectations. Do we see the market rally on Monday because this raises chances of no rate hike in May which means FOMC is now ‘paused’ or does the market selloff on Monday because a slower jobs market means that companies are finally bracing for a recession which means less hiring, spending, etc. which could be bad for earnings which means the current SPX multiple might need to come down more.
IMO it’s still too high which is why I don’t think this market has any meaningful rally in the tank right now, we might see this mini rallies off pullbacks or cooler inflation data but I don’t think we’re anywhere near a new bull market, not at 18.5x forward SPX earnings. I think the next 12+ months could be lots of sideways chop, perhaps 3700 on the downside and 4200 on the upside so we can still make money trading the chop but need to be quicker about taking profits and more aggressive with stop losses when things are falling apart.
IMO the only way we see a bull market in the next 6 months is if the equity markets selloff by 10-12% and the credit markets start to freeze up in which case we’re back in QE and accommodative monetary policy with rates coming down and money flowing back into equities because fixed income no longer looks attractive and sitting in cash isn’t an option. If a recession in coming than we should see credit spreads continue to widen but it might take a black swan event to really freeze up the credit markets. Everyone is talking about CRE (commercial real estate) as the next time bomb but that will take some time to play out. I remember from GFC that credit was blowing up everywhere, from the CDOs and CMOs to the bank preferreds to the global bond funds and even into muni’s because tax revenues were plummeting which mean municipalities were defaulting on their debt. It was a mess but we’re nowhere near that yet.
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