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Overly Bearish SPY Positioning, I Said

S&P 500 premarket recovery was boosted by bank earnings, but rising Middle East tensions (Israel calling for civilians to evacuate from Gaza, and Iran‘s threat of reprisals) overwhelmed the buyers as much as underwhelming consumer confidence data. Inflation expectations coming in hotter than expected didn‘t help either, but there were no meaningful changes in Fed rate raising odds for 2023. In spite of obviously sticky and hot inflation figures (PPI presents inflation ahead while CPI is the rear view mirror), futures markets give Nov rate hike just over 10% probability while Dec stands at 30% only.

That‘s the result of seven Fed speakers in the last two weeks indicating the end of the rate raising cycle, preferring instead to keep rates elevated for longer or relying on the bond market doing the tightening for them over the months ahead. Safety trade (USD, TLT, gold and oil up) kicking in is though a result of geopolitics, and unless oil supply gets crippled e.g. in Iran, crude oil is likely to give up some of its premium in the days ahead, which concerns to a lesser degree gold as well.

The retreat in yields would be a function of end of goldilocks economy, retreat from the recession avoided narrative, and recognition of unavoidability of recession – we‘re nowhere near this dynamic yet, job market is still strong, participation rate rising, and household balance sheets are healthy with some $4T parked in money market funds. It‘s the still strong shape of the economy that is going to provide the fuel for Q4 S&P 500 advance – together with money market funds seeking a better return.

Given the Middle East situation, its negative prospects have been arguably already meaningfully factored into Friday‘s stock prices (I covered way more ground in that video, and also in this tweet). The more long-term yields retreat without evidence of the economy going over the cliff, the better the prospects for stock market inflows.

And which sectors would benefit? It would be tech, semiconductors, industrials, energy (in the absence of sharp oil pullback) – and also discretionaries would come out better than staples or utilities over the weeks ahead.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 5 of them.

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

4,392 breakout failed, and so did 4,365 as a support. The next level in the low 4,340 (warranting stop-loss placement at 4,338) though worked – in a heavily risk-off day where gold rose $60 and utilities with consumer staples did well.

Odds are high that the three former leaders mentioned in the caption, would see inflows Monday lifting prices, because the fears going into the weekend have been heightened enough already, and weren‘t outdone by real world events, which would affect energy too. Thus far, seeing cyclicals do better, means opportunity for tech, semis and communications to catch up on intraday rates retreat. Also worth remembering is that I said in yesterday‘s video that 4,365 is to present no resistance to speak of.

Medium term though, tech would be the chief winner while communications are to be slowly getting under pressure – and NFLX earnings ahead would probably confirm that – the break below 200-day moving average isn‘t a positive development for the whole sector.

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Sectors and Stocks


Utilities and staples are to underperform even if rates retreat, and aren‘t to magnify their retreat over the remainder of this year. The impact of high enough rates already combined with intention to keep them elevated longer than appreciated, will be taking its toll as much as the bond market keeping up the tightening for the Fed.

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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

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