Due for a Bounce but the Rallies Keep Failing

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Our View

I don’t remember a time when there were so many negatives — and how and when they would start to impact the US economy. I think I know how the economy is doing, but why not ask ChartGPT? 

“The United States is expected to keep churning out growth in 2024. The International Monetary Fund expects the American economy to expand 2.1% this year — more than twice its forecasts for growth in the major advanced economies Japan, Germany, the United Kingdom, France and Italy.”

That's all fine and dandy, but this doesn't cover the blistering geopolitical problems that are spiraling out of control and it doesn't cover the pension funds mass exodus from pulling billions out of the stock market. After record runs and extreme risk, the funds are taking money out of stocks and rotating into bonds. 

The largest US fund, the California Public Employees’ Retirement System (CalPERS), is planning to move close to $25 billion out of equities and into private equity and private debt. It isn’t just the pension funds…the public has been dialing back expectations and moving toward lower-risk assets like bonds and notes. This can be a tricky venture, when the funds sell stocks they risk potential stock market gains. 

It's a big deal. 

Goldman Sachs analysts estimate that pensions will unload $325 billion in stocks this year, up from $191 billion in 2023 as large retirement funds rotate their positions. The California Public Employees’ Retirement System reduced its target stock allocation to 37% from 42% while ramping up investment in private equity and private debt. The fund expects those two asset classes to return 7% to 8%. It's not just the CalPERS moving money out of stocks. The $260 billion New York State Common Retirement Fund said earlier this month that it plans to shift money into private equity, real estate, and real assets. The $80 billion Alaska Permanent Fund Corp. is cutting back on equity risk, too. 

This is not exactly an encouraging sign. Many of the big retirement funds have outstanding track records and as I have always said, “if you want to know where the S&P is going, follow the money.”

MiM and Daily Recap

After dropping in the final minutes of the day, the ES plunged lower after Israel counter-attacked Iran and fell all the way down to 4963.50 and then rallied all the way up to 5056.50, 93 points off the low and open FRY-day’s regular session at 5047.25. The open was pretty much like we have been seeing for the last three weeks: sell-off and then the dead-cat bounce. After the open, the ES sold off down to  5038.25, rallied up to 5050.00, pulled back, and then rallied up to 5068.00 at 9:50, sold off down to 5040.50, rallied up to a lower high at 5054.00 at 10:10 and it was the high that set up the decline. The ES traded down to the VWAP at 5028.25, rallied up to another lower high at 5045.00, and then sold off down to 5602.75 at 12:50. 

After the low, the ES rallied up to 5030.00, pulled back to 5017.50 at 1:40 and then rallied up to 5037.00 at 2:00 and traded down to 4992 at 2:50. After the low, the ES rallied back up to 5009.75 at 3:20 and then dropped down to 4992.75 at 3:47. The ES traded 5097.50 as the 3:50 cash imbalance showed $1.4 billion to sell, traded 5091.50 and then rallied up to 5004.75 at 3:55 and then rallied up to 5008.00 at 3:59 and traded 5003.50 on the 4:00 cash close.

In the end, it was all about the failed rallies. In terms of the ES's overall tone, there is a high level of complacency with an exorbitant amount of risk. Nvidia was weak and was dragging down the NQ, which was dragging the ES around with it all day. In terms of the ES's overall trade, volume was high: 601k traded on Globex and 1.646 million traded on the day session for a total of 2.247 million contracts traded. 

gs cta levels: CTA Flows 4/19/2024 Over the next 1 week… Flat tape: Sellers $26.9B ($16.1B out the US) Up tape: Sellers $13.8B ($10.6B out the US) Down tape: Sellers $50B ($22B out the US) Over the next 1 month… Flat tape: Sellers $40.8B ($19.6B out the US) Up tape: Buyers $40.8B ($16.8B into the US) Down tape: Sellers $229.8B ($77.2B out the US) Key pivot levels for SPX: Short term: 5122 Med term: 4886 Long term: 4615

Technical Edge

• NYSE Breadth: 64% Upside Volume 

• Nasdaq Breadth: 53% Upside Volume

• Advance/Decline: 68% Advance 

• VIX: ~18

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!