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- Dow Tops 40,000 as Bulls Roll Ahead
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Our View
Sixteen years after the 2008 Credit Crisis and zero borrowing costs, the YM (Dow futures) traded 40,000 — something that seemed impossible after the global financial crisis. A far cry from when Bear Stearns and Lehman Brothers were rolling over and there were legitimate fears about the global financial system.
I understand that I am not the smartest person, but who do you know that did the AIG and BofA business during the credit crisis — AKA my largest desk customers. I oversaw the liquidation of AIG’s entire book. And even larger was Raj Malhotra, one of the most active and profitable accounts on Wall Street.
The reason I write this is that while markets are soaring, we can't overlook the $1 trillion the Fed prints every 100 days, nor can we overlook the $34.6 trillion in US debt. Another big thing I see here in Florida is the amount of restaurants and small business closing.
I’ve lived down here in Delray for more than 10 years now, and I haven’t seen anything like it. Recently a well known, high-traffic restaurant closed in one day and a month later it was an ice cream shop. At least 5 places have closed in downtown Delray in the last few months.
Here is an excerpt from a friend trying to sell his $2 million, high-end condo in a four unit, very private, upscale building. It's in response to an email he sent to his real estate salesperson. To me, it sums things up perfectly. It's everything I have been telling him over the last two years.
Meanwhile, in the downtown neighborhoods, essentially from Oak Street Beach on the north to Ida B. Wells Drive on the south, there is more than 26 months' worth of $1.5 million-and-up inventory on the market today.
Among many other examples of sellers asking less than they paid are the owners of a four-bedroom on Bellevue Place whose asking price of about $2.2 million is about $150,000 below what they paid for it in 2010. A 69th-floor three-bedroom at the Trump International Hotel & Tower is offered at $3 million by sellers who bought it for $3.1 million in 2016. At the Ritz-Carlton Residences on Erie Street, a three-bedroom condo hit the market today at about $1.76 million, or a little more than $300,000 off what the sellers paid for it in 2018.
The bottom line: It's great that the stock market is going up, but high rates, historically high debt, and inflation are still a very big problem that's not going away anytime soon, even if the Fed lowers rates.
Our Lean
Today's lineup includes the US leading economic indicators number, Fed Governor Christopher Waller speaking at 10:15, and the May monthly options expiration.
Yesterday I thought we would see some sideways-to-lower price action, but the ES had to rally first before it reversed. As I said early this week, the historical stats are not great for today's expo and I didn't like how the ES acted late and kinda thought we could see more of the same today.
For the bears, there are some gaps to fill on the downside and for the bulls, the ES needs a few days of back-and-fill before it goes back up.
Please note: We’ll have a special guest post coming later today.
MrTopStep Levels:
MiM and Daily Recap
ES recap
The ES traded up to 5343.25 and opened Thursday's regular session at 5332.25. After the open, the ES traded 5330.00, rallied up to 5336.75, dropped down to 5328.25 at 10:03 and then rallied up to 5341.50 at 10:33. From there, it traded back down to 5338.50, rallied up to 5341.25, traded 5339.00 and then over the next several minutes traded up to 5349.00 at 11:03.
After the high, the ES pulled back to 5345.25, rallied up to a lower high at 5338.50 and then dropped down to 5338.50 at 11:21. It rallied back up to another lower high at 5347.00 at 12:00 and pulled back to the 5335.25 at 1:00, rallied back up to 5341.25, pulled back to the 5327.50 level at 1:30, rallied back up to 5334.75 at 2:00 and then dropped down to 5623.50 at 2:30.
After the drop the ES rallied up to 5335.75 at 3:30, traded down to 5322.50 at 3:48 and traded 5325.50 as the 3:50 cash imbalance showed $4 billion to buy, rallied up to 5333.50 at 3:56 and then sold off down to 5320.50 and traded 5319.75 on the 4:00 cash close. After 4:00, the ES sold off down to 5315.50 and settled at 5317.75 on the 5:00 futures close, down 12.75 points or 0.24% on the day.
In the end, there was a little something for everyone — a new high and a late-day drop. In terms of the ES's overall tone, it acted firm until it made its 5349.00 high but unraveled thereafter. In terms of the ES's overall trade, volume was low: 169k traded on Globex and 995k traded on the day session for a total of 1.164 contracts traded.
Technical Edge
NYSE Breadth: 43% Upside Volume
Nasdaq Breadth: 85% Upside Volume (!)
Advance/Decline: 44% Advance
VIX: ~12.25
Lowest since mid-December
Guest Post — SpotGamma
SpotGamma is one the the shining stars of the options markets. If you have never heard of them or already know of them and have never signed up for their options flow products or the SG Academy, I fully suggest you check them out and add them to your trader’s toolbox.
Here’s a snippet from them:
Futures are churning just below the SPX 5,300 Call Wall ahead of todays options expiration. We see approximately 25% of index gamma expiring today, and with that volatility has the opportunity to increase next week - regardless of market direction. We note the SPY Call Wall did shift to 535 (from 530) as traders added puts (likely short) to the 530 strike, and sold calls (likely short) up at 535. This rolling of positions would potentially remove overbought conditions should the market rally next week.
To be clear, this is not a massive expiration (compare May, below, to the massive June OPEX), but we think its enough to loosen up the 5,300 pin. We are not expecting a material shift in volatility until Wednesday's NVDA earnings & VIX expiration.
Economic Calendar
For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/