8/19/24

#MACRO: $SPX, $VIX, $USDCAD,

#STOCKS:

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• RTM: Conflict
• 5 Markets Gauges To Watch For Next Week
• Stocks Rally Ahead Of CPI
• RTM: Market Is Bracing For Data
• RTM: Consolidation Phase Almost Over?
• RTM: Repeat Mode
• RTM: Shockwaves

Today, credit spreads (which tell us how risky some loans are) didn’t change much. But other things did. The one-month implied correlation index (which shows how stocks might move together) went up, and the 50-delta one-month S&P 500 IV (which tells us about expected price changes) also went higher. Meanwhile, the USDJPY (a way to measure the value of the U.S. dollar against the Japanese yen) fell a lot.

All these indicators suggest stocks dropped, making you think the S&P 500 went down today, but it actually went up by 97 bps (which means almost 1%). It seems like big computer-driven trades (called CTA flows) had a lot of control over the market today, especially since there’s been low trading activity since the Nikkei (a Japanese stock index) dropped on August 5.

To give you an idea, on July 3, 2024, which was a half-trading day, the S&P 500 futures (a way to bet on where the S&P 500 will go) had about 809,000 contracts traded. Today, there were just under 921,000 contracts traded. This shows how big trading moves by these systematic funds (like CTAs) can really push the market higher.

Tomorrow, I’ll be keeping an eye on the Canadian CPI (Consumer Price Index) data, which comes out at 8:30 AM ET. People expect a 0.4% increase from last month and a 2.5% increase compared to last year.

The USDCAD (which shows how the U.S. dollar compares to the Canadian dollar) has been going down a lot since early August, when it was at a high point. Now, it’s getting close to being too low (oversold) as it just broke through the lower Bollinger band today (a tool that helps track prices). The RSI (Relative Strength Index, another tool to see if something is too high or too low) is at 34.7, which means it could still drop a little more.

If the Canadian CPI comes in weaker than expected, the USDCAD might go up. But if the CPI is stronger, the USDCAD could become oversold. There’s likely some support for the USDCAD around the 1.36 level (which means it might not drop much below that).

The USDCAD (which shows the relationship between the U.S. dollar and the Canadian dollar) often moves in the opposite direction of the S&P 500. So, when the USDCAD reaches a low point, the S&P 500 usually reaches a high point, and the other way around. It’s not always exact, but when we use this with other tools, it helps us get a good idea of what might happen next.

Oil prices dropped today and are getting very close to a significant breakdown. If the trend breaks, it could lead to a retest of support at $67. The momentum on the RSI (which measures the strength of price movements) looks bearish to me, meaning it suggests prices might keep falling.

That’s all for today.

-Mike