7/17/22

STOCKS –  PYPL, NOW, TSLA,

MACRO – SPY, VIX, VVIX, DXY, RMB, EUR, GOLD

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Stocks had a solid finish to what had been an otherwise terrible week. Right now, it feels like we are entering an inflection point, and the window for one last move lower appears to be closing. Does that mean I think we will be racing to new highs in the market? No, it does not. But what it means is that I think if we are either at or very close to a short-term bottom, that is likely to lead to a post-FOMC relief rally.

The biggest reason for the pending rally is the liquidity that appears to be coming into the market based on reserve balances. There tends to be around a 2 to a 3-week lag between reserve balances and the S&P 500. Based on the chart below, the market could rally sometime next week, coinciding with the FOMC meeting.

S&P 500 (SPY)

Preferably I would like to see the S&P 500 fill the gap at 3,675 before any rally starts. I think that is possible, and I believe there is a path for that to happen by the time of the FOMC meeting.

VIX & VVIX

There is undoubtedly enough event risk with an ECB meeting this Thursday and the FOMC meeting on July 27. It should help push the implied volatility measures within the S&P 500 higher and help to push the S&P 500 lower. There was a very slight divergence that started on Friday between the VVIX and VIX, which suggests there may be a trend change in the VIX, which pushes the VIX higher once again. If this trend continues with the VVIX moving higher, I expect the VIX to follow.

S&P 500 (SPY)

Additionally, there are two unstable patterns in the S&P 500 futures, with straight-line advances. Typically, straight line advances result in a return to the origin, which in this case would be a return to 3,730. It has been a typical pattern and has happened multiple times just since the end of June.

A drop to 3,730 would undoubtedly put us in the range needed to close the gap at 3,675.

Dollar

Watch the dollar versus the China RMB. There appears to be a bullish dollar break out versus the RMB, which means further RMB weakening and the potential to go to 6.96 to the dollar.

Euro

It will also be a big week for the euro, with an ECB meeting on Thursday. I have no faith in the ECB, and they have been a significant disappointment in my view. The market seems to agree with the euro trading at parity. If the ECB disappoints again, the euro may be trading at 0.96 to the dollar.

Gold (GLD)

A stronger dollar will continue to push gold down, but the good news is that support at $1675 appears to be very strong and should be at least a short-term bottom.

Tesla (TSLA)

Tesla will report results this week, which will be interesting, primarily due to their significant bitcoin holdings and the potential for a big write-off. The stock has been consolidating sideways, but the RSI has been trending higher, which is a bullish divergence. But the problem is that the long-term trend in the RSI is bearish. If that is a symmetrical triangle which has formed in Tesla, then the long-term bearish momentum should win, pushing the stock lower to around $625.

ServiceNow (NOW)

ServiceNow was battered last week after the CEO mentioned things were slowing down. The stock is in a clear downtrend and is testing some support on a long-term uptrend line. The stock could be on a long-term path to the low 300s.

PayPal (PYPL)

PayPal looks like it may be finally breaking out of that falling wedge and managed to pop above it on Friday. There is powerful upward momentum, as noted by the RSI. The combination could finally help to push the shares to that $82 price we have been looking for over the past several weeks.

That will be all for today; I’m just getting back into things after a week off.

-mike