Weekly market preview Feb 20 – 23 part 2 (NVDA bull/bear scenario, institutions positioning data, Equity sentiment )
Broad market overview
Small cap, Transportation and semis sell off the most.
While equal weighted perform better than Benchmark indices.
DJIA previous breakout is not confirmed by Transportation, which has been range bound for many weeks ( between 15200 – 16200 )
S&P 500 11 sectors
Staples and utilities are the top ranking sectors while Technologies, Consumer discretionary and Energy are the bottom ranking sectors.
From market carpet visualization based on yesterday market closed, a 1-day escape to defensives are visually obvious ( Staples green among a sea of reds )
Preview for the Nvidia earnings
These are all the bullish and bearish earnings data scenario for your reference.
Total revenue, Data centre revenue, Margin and future guidance on the aforementioned metrics are what market will be closely scrutinizing to determine the next actions ( Chip lead time may be monitored by market as well )
Nvidia Data centre market share has come a a long way since 2023, how long can it maintain it’s market share ? we will see in the coming quarters.
Options market are pricing in a 10-11% move post earnings. Given that Nvidia has run up that high, it has to outperform and surprised to the upside on multiple front, Revenue (in particular data center ), Gross margin, and very upbeat guidance.
Given the outsized contribution of Nvidia to benchmark market rally in the past 14 months, market next phases depends crucially on this earnings.
NYSE market internals
The selling seems contained and there’s no expansion of new lows.
On Feb 16th 2024, 2 to 1 NYSE Decliner to Advancer ratio (1875/934 )
On Feb 20th 2024, 1.47 to 1 NYSE Decliner to Advancer ratio (1685/1147 )
SPX
Technically speaking,
1)momentum divergence point to potential for pullback
2) 5030 was twice rejected, but pullback can only be confirmed after 20D MA is breached with follow through action ( to the downside )
NDX
Technically speaking,
1)momentum divergence point to potential for pullback
2) Pullback can only be confirmed after 20D MA is breached with follow through action ( to the downside )
The most anticipated event will be Nvidia earnings on Feb 21 after market closing. And how the institutions manage their fund flows , by way of derisking ( Volatility targeting regime funds derisk due to higher realized volatility, CTA derisk with their Trend following algo ), or only rotation to other sectors will determine the next moves in the market.
Next up we will look at Prime brokerage data for insights into Hedge fund positioning, ( words of advice, it merely tells you Big and smart money current positioning , it suggest odds but does not provide any trigger for unfolding of next event, i.e. sell off / consolidation )
Prime brokerage Hedge fund positioning data
Hedge Fund Tech exposure
HF allocation to tech sectors are …96%, is there other buyers left at the moment to support further rally, we shall see in the coming days.
Meanwhile, Net Call buying volume of Mega cap growth and Tech sectors are approaching historically high level.
Hedge Fund Semi exposure
HF exposure to Semis are high, but not historically high.
Hedge fund Gross leverage
Big&Smart money Overall Gross exposure is hovering around 270%, when will they Degross ( cutting gross exposure )? And where would they start degrossing if risk off happens ?
Commodity Trading Advisor positioning
Fully allocated, if SPX/NDX drop, it will trigger sell order. Major Selling zone is rumoured to be around 4850 – 4900
These guys ramp-up exposure very quickly and will not hesitate to dump their positions when they sniff out first warning signs.
Vol control/targeting funds positioning
Funds employing Volatility controls are also getting close to max exposure. Their major sell order will hit the market once market drop start exceeding 2% mark.
Equity Sentiment
GS prime brokerage equity sentiment has exceeded euphoria mark. Can market remain high and continue to rally, absolutely possible looking at previous history.
SMCI call exposure
I’m sure you have seen the memes and sarcasm directed at SMCI chart after selling off at 1000 level. So I will not bore you with them, instead let’s look at this Institutions call volume chart
What adjectives would you use to describe this exponential SMCI call volume chart? I have no Idea …
Non-commercial player ES Futures positioning
Among all the positioning data, this Investment managers S&P 500 futures positioing data is the one suggesting market downside remain shallow. Non-commercial ( active investment managers ) are well hedged since beginning of 2024. There’s a market saying a well-hedge pot never boils, this could be the reason why indices pull back has been shallow and contained so far, because big guys anticipated it and took defensive postures accordingly, we bet they would have added more hedges last week after the CPI and PPI data.
So again, the sell-off could have been trend pause or minor consolidation again this time around and market may continue rally after the dust settles.
Of course, much depends on Nvidia earnings later Feb 21st AMC.
Asian Market
Hang Seng Index
around 10am Feb 21 2024, Hang Seng is making another attempt at attacking at area above 16450 , if it can stay above it, then it’s confirmation sign of bullish undertone in the market.
50 - 50 situation. Either consolidate before waterfall decline
or
Base building for next leg up higher.
( leaning towards base building for next leg up higher if it can stay above 16450 , or better yet 17000 for several daily sessions or the subsequent retracement does not breach support of 16000 )
Bitcoin
The good news ? Breakout above 50K level. The bad news ? Pause and consolidation follows normally after a big move.
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/
The views expressed on this website represent the current, good faith views of the authors at the time of publication. Please be aware that these views are subject to change at any time and without notice of any kind. Marketcycleedge.substack.com and its author assumes no duty and does not undertake to update these views or any forward-looking statements, which are subject to numerous assumptions, risks, and uncertainties, which change over time. All material presented herein is believed to be reliable, but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that marketcycleedge.substack.com and its author considers to be reliable; however, marketcycleedge.substack.com and its author makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein, or any decision or action taken by you or any third party in reliance upon the data. All traders and investors are urged to check with Financial advisors before making any trading /investment decision.