Daily market review July 8, 2024 ( Market pricing in disinflation path, softer CPI while pending for Fed chair Powell Semi-annual testimony and CPI data )
Broad market overview
Overall market didn’t move much on Monday, as market is pending for Powell Semi-annual testimony to Congress on Tuesday and CPI print on Thursday. On hindsight, based on the market action of the past 5 days, (cap-weighted) market has already priced in softer CPI and softer labour/economic growth post Powell disinflation narrative last Tuesday in Sintra ECB forum. Economic data bears that out as well, softer inflation, softer growth and labour market, resembling a goldilocks type of situation.
There’re still a lot skeptics out there,
1) Talk of second wave of inflation coming ( higher shipping freight cost, still too soon to price in for market )
2) Fed cut = bad things happening ( recession coming , or hard landing…etc, there’s too much government spending for the economy to fall into recession )
3) Breadth is extremely weak, market performance is driven by a few AI related stock. This is what we are watching carefully, if there’s no broadening out in times to come, then additional caution may be warranted
But we do believe that this week will be a week of reckoning as Fed chair Powell testimony and CPI will quash the first 2 narratives out there. And if you take any action by Thursday when the dust settles, it would have been too late. But what about entering market now, well not much upside to capture and risk rewards has become unfavourable. ( I hope I’m wrong, but let’s see )
S&P 500 11 sectors overview
Nothing much to see here..
MOVE index
Falling from lower high here.
Move index is currently at 97.96, ( bond price implied volatility is expected to be around 9.8% per annum. ) Lower MOVE points to (implied) lower bond market volatility going forward.
Bond volatility moving lower translates into less haircut to bond, in which more liquidity can be extracted from the collateral pool.
NYSE & Nasdaq market internals
There’s marginally more advancers than decliners
Generally after Memorial day holiday, volume will decline gradually heading into the summer season.
On July 8 2024,
1.25 to 1 NYSE Advancers to Decliners ratio (1552/1236 )
1.27 to 1 Nasdaq Decliners to Advancers ratio (2346/1842 )
% of stock above 20Day, 50Day, 200Day
Breadth stalled while SPX breakout from recent consolidation range.
breakout and improvement in breadth may possibly be coming soon, which could bring about broad based rally. Otherwise…
% of SPX stock above 20D MA : 47.8%
% of SPX stock above 50Day MA : 46.8%
% of SPX stock above 200Day MA : 65.8%
TNX and high yield bond
10Y yield drop breached support and is at 4.27%, High yield bond and S&P 500 has broken out of the consolidation range
Bitcoin
According to the foremost Global Liquidity Expert, Bitcoin track the Global Liquidity relatively closely, lagging only by about 6 weeks, it display the quickest responsiveness to changes in liquidity conditions.
Bitcoin recent function as a liquidity proxy has gone completely kaput for the past few days, this is because Bitcoin is mired in its own market idiosyncrasy, while stock market is obeying in its own cycle characteristics
Both Mt Gox and German government move their bitcoin at liquidity thin holiday period around Independence day, contributing to the sell off
German government bitcoin movement
German government has moved tremendous amount of bitcoin to the exchange
Will it cause further sell-off or will market be able to absorb the selling qty without losing ground ?
Bitcoin daily chart
Selloff in Bitcoin has accelerated and a new swing low was printed at 53.5K , 200D MA has been breached
Will Monitor extremely closely if it either of the 3 scenario applies,
1) successfully defend the 200D MA
2) further waterfall decline
2) short stay below200D ma and develop a certain fail breakdown pattern
NDX and SPX trend line is getting steeper
Trendline is getting steeper, should you be concerned ?
When will breadth improve and kickstart a broad based rally and when should you be concerned if the market rally is still not broadening out
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So when will breadth improve and kickstart a broad based rally subsequently?