Stocks Rally On May 17 As Bond Yields Surge

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5/17/22

STOCKS – WMT

MACRO – SPY, TLT

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At least through this part of the week, I have gotten this all backward. I thought going into today; there would be put buying with Powell talking at 2 PM. Instead, the VIX has just melted, which has helped to re-inflate the S&P 500, which rose by about 2%. At this point, I think the S&P 500 overshot things and has moved too high. The big gamma level is around 4,000 and generally speaking, the market tends to stay around this level going into Options expiration. So unless there is a meaningful shift in gamma level overnight, it seems unlikely the options will let the index go much higher.

The rally has also taken the index back to resistance at 4,095, the bottom part of the bear flag I noted two weeks ago, which broke on May 9. It is also the 50% retracement level of wave three down and probably completes a wave four counter trend move. Meanwhile, wave C is equal to .618% of wave A within larger wave 4. The only other alternative is that S&P 500 rises and fills the gap at 4,123. Otherwise, I think the S&P 500 has overextended itself this time.

Powell did talk today but did not have his A-game, he just seemed off, and I felt like he couldn’t get his footing. I felt like he was on the defensive and struggling to find the right words. But I did get the sense that the Fed plans to keep raising rates until they see inflation break, which likely means something else breaks along the way. But I also got the sense that Powell isn’t entirely sure just how far they will have to raise rates to bring inflation, and that really shouldn’t be settling for the market at all. It is probably why we saw yield higher into the close of trading today.

It resulted in the TLT dropping by more than 1.2% on the day. I think the TLT has just started it’s next lower here and is probably heading to around $106.

Walmart (WMT)

Walmart was hammered today, dropping by more than 11%. The stock closed just a little bit above support at $130. If that technical support does not hold, there is much room for the stock to drop around $117.

This is going to be a short one today.

Mike

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