State of market pre Fed rate meeting

Apologies to all the subscribers for the not reporting to your inbox in the past few weeks as my family was down with illness and my son was admitted to hospital recently. And I was quite close to publishing some days, but just couldn’t finish certain section or save those screenshot in time.

Hence I will try to skip some charts for the time being and only post charts that are noteworthy to churn out articles quicker ( or screenshot without commentary )

Broad market overview

Market was largely range abound and will still be confined recent ranges, which calls for nimble action, position adjustment for shorter term trading or hedging at an advantageous position. And if you only know buy & hold, DCA, then don’t look at your portfolio until election dust settles. The churning could be gut wrenching, or vomit inducing if you are not used to seeing market going against you.

Participants was given a taste of this from Sep 6 to Sep 11 trading session ( or end August till now ), in particular, Sep 11 intraday session. 

Recent trading Price action is not dissimilar to whiplash path, on Sep 11, market was falling sharply at the opening before hitting a bottom around 10:45 – 11am US eastern time.  

On Sep 11

Semis was the top performer, rallying by more than 5% , while NDX rally by more than 2%.

Overall, Cap weighted indices outperform equal weight counterpart, small & mid cap indices by a large margin.

On Sep 12 

Small cap was the top performer, rallying by more than 1 %.

Overall, Small and mid cap outperform he overall market. While equal weighted indices performance is almost on par with cap weighted indices.

S&P 500 11 sectors overview

Sep 11 Session.

Technology, discretionary and Communications are the best performing sectors. While Energy, Staples and Financials are the bottom ranking sectors.

Sep 11-12 intraday session ( 15 min bar )

Interestingly on Sep 11 , Staples was falling more, while tech was falling the least from 9:30 am to 11am US eastern time, thereby causing SPX/SPY to fall by a larger % than NDX/QQQ on intraday basis( unusual happening ), which eventually culminated into Tech heavy Nasdaq outperformance against other indices.

Sep 12 Session

Communications, discretionary and Material are the best performing sectors. While Real Estates, Utilities and Financials are the bottom ranking sectors.

FOMC rate decision meeting announcement @ Sep 18

No surprise here, should be the 25 basis cut. But participants will be closely watching dot plot, Rate path and terminal rate, as well as Fed forecast of unemployment rate as Fed reaction function switch to Unemployment post Jackson hole.  Also, Fed chair Powell tone will be closely watch.

MOVE index

Move index is currently at 98.03, bond price implied volatility is expected to be around 9.8% per annum.

As usual, lower MOVE points to (implied) Lower bond market volatility in the future, but forward rate pricing will be adjusted quite furiously when Fed dot plot is published on Sep 18, so MOVE index is likely to be volatile, we will be monitoring it closely post Sep 18 market close, see how it fluctuate 2 - 4 week after Sep 18.  We will likely monitor yield curve as well to see how it fluctuate and evolve going forward ( base case = bull steepener )

Yield Curve

Yield curve has been bull steepening for the past few weeks.

Stock bond relationship

Stock-bond negative correlation is strong. In every cycle, the concern with recession / growth scare will be magnified as fed begin their rate cut cycle.

Stock & bond is one of the important signals to watch, this will be the primary risk on/risk off switches

Intraday Bond vs stock price is one of the best way to glean further insights into this stock bond dynamics which unfortunately is only available in Tradingview .

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3)      my thoughts on latest market development

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