3/9/22

STOCKS – AMZN

MACRO – SPY, RATES,

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• RTM: Live Event REPLAY
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• RTM Exclusive: Volatility May Be Heading Much Higher
• RTM: Rates Explode Higher, But So Do Stocks
• RTM Yields Surge

After two big days of finishing lower, stocks snapped back, with the S&P 500 rising by 2.6%, a solid showing. Tomorrow will be a significant day with the giant CPI print at 8:30. Estimates are for the CPI to have increased by 7.9% y/y and 0.8% m/m.

I have no idea how that will turn out, but options trading in the SPY and QQQ showed negative delta hedging, implying that puts were bought and calls sold. Meanwhile, rates rose dramatically, suggesting the market is ready for a hotter than expected CPI report. Equities may be left holding the bag for the second month in a row. Remember, the same exact thing happened on Feb 9. 

At the time I wrote:

Stocks rallied today but based on all the data I saw, puts were being bought, and calls sold on the SPY and QQQ ETFs, which isn’t bullish. Additionally, the 2-Year Treasury surged to a new cycle high by the close, while the dollar dropped. Even real rates on the 5-Yr TIP ended up surging higher into the day’s end despite being lower all day.

So if the stock market is expecting a miss on CPI, then it is out there alone because not one other part of the market is looking for a miss, and the stock market is the last indicator I would use to guide me on economic data.

Sound familiar?!

Rates

The 2-Year rate rose by six bps to close above resistance at 1.62%. It is now trading at 1.66%, a new cycle high. So if I’m reading, the bond and options market right, it would seem the preparedness is for a higher than expected CPI print, which should push yields even higher, and probably translate to a Fed that will be much more aggressive. Even the 5-Yr TIP saw its rate rise to -1.53% from -1.7%.

S&P 500 (SPY)

If that turns out to be the case. Then the rally in the S&P 500 should melt away, just as every big rally in the market has since the beginning of the year. That means the giant gap at 4,170 is likely to be filled if not tomorrow, probably by the end of the week.

Not only that, but the move higher in the S&P 500 today was equal to 100% of the rally from yesterday and a 50% retracement from the March 3 peak. So if today were the peak, it would make sense. Of course, if this wasn’t the end of the rally, then there is a chance we move up 4,360 and fill the gap created on March 4. But given the action in bonds and options, I think that may prove to be more challenging. I went through all of this today in my video segment.

Amazon (AMZN)

Amazon announced it would split its stock 20-for-1 and jumped around 6% after hours. From a fundamental standpoint, nothing changes. From a trading standpoint, a lot changes, leading to more volume and more options trading. As long as the stock stays under the red trend line, not much changes in my view.

Otherwise, that is it for today.

Mike

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