The S&P 500 rose 0.36% last week. After some profit taking early in the week, Wednesday surged. It churned on Thursday. Friday was blunted by the surprise Employment Report.
The S&P got stuck in a heavy supply zone after its spurt the previous week. You can see in early June it could not get above 4,200 after churning just below for 8 days. This time it is above the 50 day MA which is important for many traders. The 50 day is tilted up this time.
This is an exceptional situation. The core of the rally is too many investors getting negative, creating large cash positions, shorting individual stocks and indexes and buying more Puts than Calls.
Below is an example. It shows the CTA algorithm trading system has been net short for months. Readings below the red line means the funds are short the markets. This group has been very profitable this year. The algorithm requires that the funds buy or cover as the market goes up, limiting giving back profits.
There are more funds like this, Risk Parity is another group.
A quant report estimates that the CTA group would start buying $21,8 billion in the next month if the S&P goes above 4,200. If the market breaks down below 4,1000, they would start to layer in more shorts.
This is part of our investing world. These trend following systematic funds exaggerate up trends and down trends.
The background got more complicated Friday. We have gone from the possibility of Fed pivoting on a series of bad economic reports to thinking the Fed may have too go higher for longer??? We should get a lot more data this week on how various strategists and the trading markets react to the surprise report.
Wednesday.is a day of interest. The CPI is reported. The consensus forecast is for a 0.2% monthly increase from 0.7% and the y/y 8.7% from 9.1%. Gasoline is having a large decline. Meanwhile, the Core CPI is forecast to be up 0.6% m/m from 0.7%, while the y/y up to 6.1% from 5.9%.
Is the market going to realize gasoline is not going to go done so much each month or will the market get excited by the possibility peak inflation and a beginning of down trend. ??
The Fed will be interested in the sticky Core.
Last week there was a reversal of public buying of equities and a surge in fixed income buying, High yield had its best inflow in months.
It is helpful that the Bulls has risen to 41% from the high 20's. When a service turns Bullish some of its readers follow the advice and buy. It will be interesting to see if the Bulls went even higher last week??
Oil is a volatile wild card. It can swing sharply on developments. I suspect it is in a down trend, but it can have rallies. There are a lot of believers'
The long term got more complicated. The short term has upside momentum from a lack of sellers after the long decline. Meanwhile the pain trade from the the under invested is has been up. This week is teetering between a more complex fundamental outlook and a squeeze on the upside until more investors get in??? the outcome is unclear short term.
Jerry