4/20 Trade Plan
Hello and welcome to another installment of my daily e-mini trade plan. For any new readers, welcome! In this newsletter I discuss levels, scenarios and market analysis for the S&P500 market.
Hello folks, I hope everyone is doing okay during these near untradeable days. Last night I spoke more about how short-term traders are currently in the drivers seat.
Who are these short-term traders? They are the weakest of hands. At the first sign of danger they are out the door. These short-term momentum traders are not entering positions for the next several months/years, rather they are holding for days or even hours. In other words these are not the BlackRock’s of the world. These traders can keep the market supported during these light volume conditions while nothing is going on, but once the big guns return to the market the regime will quickly shift.
We see more evidence of these short-term traders on the profile today.
We saw a similar pattern to what we saw yesterday; Overnight the index saw a directional move (to the downside) and right off the open, we saw inventory correct in the opposite direction (to the upside). Perhaps more importantly, we opened right near that ever so key 4156 support level and rejected, keeping the bullish narrative alive for now.
We saw a mechanical grind higher with buyers stepping in at several references such as previous period lows, previous day lows, previous day POC.
Since there have not been any notable developments in the current auction tonight I’d just like to share my two cents on the fallout from the banking crisis that began with SVB back in March. The story has fallen out of the news cycle, but the effects are still lingering.
In essence what this has done has revealed to the average Joe that he can, and should, move his money out somewhere else and earn a 5% yield as opposed to 0.01%. In turn, banks are now having to compete with one another for deposits. This will raise the cost of funding and crunch net interest margins (bank profits). Banks will be forced to cutback on lending, leading to a credit contraction and a credit contraction has massive implications for a debt based system like our own.
Now we have seen a rebound in some of these names over the last month which IMO is primarily due to the pullback in rates following this event. The 10-Y yield has fallen 50bps from it’s March peak of 4.09%. This has reversed some of the unrealized losses seen on banks HTM portfolios.
Longer term however I do think this will continue to put pressure on the economy for the reasons outlined above. Warren Buffet began dumping his bank holdings last year and has said that he is not interested in the banks here. During the SVB saga, Buffet met with CEO’s of the largest banks here and there were no deals struck. The inaction of this old man says a lot imo.
Jumping back over to the e-mini S&P500, look this market is dead. These days are borderline untradeable. We’ve seen an implosion of volatility and volumes.
Again, I do not see a resolution to this until we resolve this range from 4100-4200, and at this point unless there is a headline that drive volumes back into this market, we may remain in this lull until the May FOMC meeting. There is not much more to discuss on the current state of the index that has not already been covered in previous posts.
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