Nvidia, NQ Lead Super-Charged Rally

ES, NQ and NVDA hit record highs

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Our View

I knew early yesterday there was going to be a big pop/upside stop run — the latter of which I wrote about in the Lean: 

“We have yet to see a good stop run, which I think will happen…I suspect that it's business as usual — pullback (either after the open or sometime early morning) and then rally back up.”

After the open, the ES dropped 22 points while the NQ was making new highs as Nvidia continued to rise, taking other big name tech stocks for the ride. The up-tick in the futures was incredible, it just kept going up and up and up with NVIDIA leading the pack. 

From its April 9th $762 low to yesterday's $1,224.50 high, NVDA stock has rallied $462.50, while the 10-year bonds have rallied ~3% in a few days and 7% in a few weeks as the yield on the 10-note fell for a fifth consecutive trading day to 4.289% — its lowest settlement since March. NVDA’s 5.2% rally took other big-name stocks (like AAPL) higher too, as the latter closed up 0.80% and logged its eighth straight day of gains with the Nasdaq and the S&P settling at all-time record closing highs.

Do you think the current volatility will continue?

B of A 

Bank of America analysts said on Tuesday that their clients have now been large net sellers of US stocks for five weeks in a row. Just last week, they sold off $5.7 billion more in stocks than they purchased, the highest outflow since last July and the low volumes, eventful markets tides appear to have shifted and the usual summer doldrums are nowhere to be found.

Morgan Stanley 

“Summer 2024 may prove volatile, with momentum stalling amid policy uncertainty,” wrote Morgan Stanley Wealth Management Chief Investment Officer Lisa Shatlett in a note this week. “Economic crosscurrents have left the [Federal Reserve] more tentative regarding rate cuts, amplifying the potential significance of each data point as debate continues over the degree of policy restriction,” she said. 

No one really knows what's going to happen, but I do agree with the increase in volatility. Prolonged high interest rates, inflation, the dollar, geopolitical concerns and the US presidential election are front and center.

Our Lean — Danny’s Trade

This is Danny Riley’s personal trading plan for the day.

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MiM and Daily Recap

ES Recap

The ES rallied up to 5328.50 on Globex and opened Thursday's regular session at 5327.50. After the open, the ES traded 5328.50 and then sold off down to 5306.60 at 10:05 with 180.5k contracts traded in the first 30 minutes. After the low, the ES quickly popped up to 5312.75 and then rallied to 5329.50, pulled back to 5324.75, rallied up to 5335.00, pulled back to 5330.75, popped up 5337.75, down-ticked and then traded up to 5240.00, and then climbed up to 5344.50 at 11:45 with 38k futures traded from the low to the high. 

After the high, the ES pulled back to the 5337.25 level at 12:55 — 61.1k contracts traded — and then rallied up to 5348.00, with another 52.6k contracts. The volumes are counted from a low to a high or a high to a low. The ES pulled back to the 5337.00 area and over the next hour and forty five minutes it steadily traded up to 5354.25 at 2:15. After the high, the ES had a small pullback to 5250.50, then just after 2:30 the ES traded into a new high at 5359.75 — up 54.75 points.

The NQ has been powering higher all day. it made a low on Globex at 18,696.25 and just made a new high at 19,037, up 1.78% at 2:42 or 341 points off the low. After another minor pullback, the ES rallied up to 5361.75 at 3:30 and then dipped down to 5355.25 at 3:37, traded back up to 5661.25 at 3:42, then traded back down to 5353.50 at 3:45 and traded up to a new high at 5363.50 as the 3:50 cash imbalance showed $1.6 billion to sell, traded 5367.00 at 3:59 and traded 5366.00 on the 4:00 cash close. After 4:00, the ES pulled back a few points and traded up to a new high at 5368.25 at 4:43 and settled at 5365.75 on the 5:00 futures close, up 61.75 points or +1.16%. The NQ settled at 19,087.25, up 386.25 points or +2.05%.

In the end, the NVDA stock split was the main catalyst driving the indices higher. In terms of the ES and NQ’s overall tone, it was explosive. In terms of the ES’s overall trade, volume was lowish: 221k ES traded on Globex and 1.158 million traded on the day session for a total of 1.379 million contracts traded.  

Technical Edge

  • NYSE Breadth: 67% Upside Volume

  • Nasdaq Breadth: 71% Upside Volume 

  • Advance/Decline: 66% Advance

  • VIX: ~12.75 

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Guest Post

— Dan at GTC Traders

A Shift in Macro-Economic Thesis?

We have made no secret that we were in a Higher For Longer camp.  Higher interest rates to battle inflation; for longer. A reverse in globalization, sticky structural inflation led us this thesis and we have held to this for some time.

But, we have noted in our twitter stream, we have seen some data points that have caused us to reflect on our stance.  Input costs for one.  Commodity Indices are falling, and Oil is falling into a crater … 

iShares GSCI Commodity-Indexed Trust Fund (GSG)

United States Oil Fund (USO)

This will no doubt have an impact on future inflation prints.  Some have noted the weaker Manufacturing PMI, but we would counter that the trend is still up this year on Manufacturing, and that the red-hot ISM Services PMI still points to an economy that is not 'cooling down'. 

Regardless, yields are falling …

US Government Bonds 5 Year Yield

As we noted last week, although we continue to hold TLT?  We also hold a 100% (although capital in-efficent) hedge with TBF.  And we continue to hold this, which gives us a 0% return.  We have neither gained nor lost on the outright position of TLT and TBF ...

TLT + TBF*3.8 Weighting

BUT ... despite having a bearish outlook?  And then facing a ridiculous rally in Bond prices as of late …

iShares 20+ Year Treasury Bond Derivative (TLT)

We have managed … capture the dividend, sell a bit of TLT Call premium against the shares owned, and lost nothing in terms of the outright position.

What Now?  Duration is the Way

We're still uncertain.

But if it's one thing we would like to stress?

Is that you can be uncertain, and still pull in profits.  

You don't know what to do?  You don't have a good read on markets?  You're feeling indecisive?  You feel out-of-sync?  

Build duration by hedging everything up tightly … and then sell some premium (build a neutral position, even if it is capital inefficient, and sell calls against the liquid market you are holding).  Our TLT + TBF*3.8 position?  We are pulling in the dividend and the call premium we sold against the TLT shares.  It's not much.  But while we are uncertain?  We have duration (time) and we are making at least a little something.

Which we feel is much better than exposing ourselves to the risk of simply being 'wrong' on a directional bet; and having to suffer drawdown.

Beta Weighted Delta ( Δβ  ) to the S&P 500?  In simple language, this means if you looked at your whole portfolio, what is your directional exposure as it relates to a 1 lot of the SPY?  

When looking at our Short-Term Trades, our Beta Weighted Delta's at the moment?  Is almost 0.

Which means?  We have time.

We can pull in some amount of profit, even if it is miniscule?  This is better than facing drawdown, from being wrong.

Will we shift our Macro-Economic thesis on sticky inflation?  We don't know.  We feel we need more time, and more data to come to a conclusion.  But while we are making up our mind?  At this point, we plan on trying to remain delta neutral (neutral on direction while pulling in profit) until we have a better read of the data. 

But as always?  These are our thoughts. Not yours.

Stay safe and trade well.

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!

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