Mid-week market update: As the S&P 500 struggles and regained its 50 dma, the corrective phase may not be over.
Here are the challenges the bulls face.
Narrow breadth
The market rebound was accompanied by narrow breadth. Such a development could have negative implications for bulls who expect broadening breadth as small caps are likely to struggle in such an environment.
The NFIB monthly small business survey underlined concerns about small caps. Small businesses have little bargaining power and the NFIB survey is a useful barometer of the economy. The Optimism Index declined, and both the hard and soft components fell, which is worrisome.
What’s more, the earnings outlook has fallen to a new cycle low. Readings are now below the levels of the COVID Crash and the only time they were worse was the GFC.
Carry trade unwind
S&P 500 futures were falling as the presidential debates began last night. The weakness was probably not caused by the debate as the selloff began before the debate. It was attributable to the strength of the Japanese Yen, when BOJ board member Junko Nakagawa said, “I think that the degree of monetary easing will be adjusted if the outlook for Japan’s economy and inflation is realized.”
Yes, the carry trade unwind is back, though the magnitude of the risk-off episode is not as violent as it was in early August. While this is highly speculative, the recent weakness in crude oil may be related to the unwind as rising volatility is causing the risk budgets at large hedge funds and dealers to compress.
Correlation isn’t causation, but the Japanese equity market looks very correlated to the NASDAQ these days.
Does anyone know or can speculate that caused today (9/11/2024) down and violent up move? Not sure what caused up move
I day trade ES, NQ sometimes RT and there’s been a theme of strong buying from better support for a few days, especially NQ. I’d say it was large trading based move using the CPI as a catalyst. Outside day with 9% probability, new 10day range max. NQ bulls are really something fierce. Wild eh?
Think about the positioning of market participants. The price action shows quite a lot of shorts from around ES 5505. Volume picked up from 5413 as buyers got aggressive and that combined with a large short unwind creates that kind of linear large upside from price insensitive buying as shorts bailed as downside continuation failed.