Home » The Stars May Finally Be In Alignment For The Markets Next Move

The Stars May Finally Be In Alignment For The Markets Next Move

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#Macro – $spx, #rates, $vix

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Stocks finished lower today as rates rose globally and the dollar strengthened. Many forces are at work, making for a potentially volatile situation for the stock market, especially as we head into earnings seasons.

Today, the VIX popped up above that 14.5 level as the VIX opex has now passed, and whether the VIX continues to move higher will largely depend on the macro factors in the market and how the market adjusts to this idea that the Fed most likely won’t be cutting rates 6 or 7 times between now and January 2025 especially if the data continues to come in, like the CPI report, the jobs reports, and today’s retail sales data, which was hotter than expected.

The timing of this may be just as important because this weekend, we will also enter the Fed’s blackout window; whatever taste the governors and board members have left in their mouths won’t be going away. The market will get a heavy dose of Atlanta Fed Gov. Bostic and SF Fed Governor Daly; both see rate cuts later this year, and Bostic only sees 2. They are both voting members this year as well. Their message will likely be similar to what we have heard regarding rate cuts for weeks.

Additionally, one could argue that even if the pace of inflation slows and the economy stays healthy, there may not even be the need to cut rates. If the policy were truly restrictive, I would think that by now, we have seen the effects on the economy. Either that, or inflation isn’t as low as the CPI report makes it seem, and the effects of falling oil prices have masked the higher inflation rates that persist in the economy.

Today, the S&P 500 finished below the 10-day exponential moving average, and while it is only one day, the fact that the index fell below it to start the year, moved back above it last week, and is now back below could be telling us that a change in trend is starting. A big sign is if the 10-day EMA starts to act as a resistance level.

A break below 4,685 would confirm a short-term double top and project an initial decline to around 4,575, a big support region. A break below 4,575 likely opens the floodgates to much lower levels and a potential return to 4,100. This is all still very far away, but again, the market dynamics are changing, and that is mostly due to the market beginning to price in fewer rate hikes, Treasury rates and the dollar rising, and the supportive hedging flows from the options market diminishing as we approach OPEX and move past it.

In the meantime, we are seeing positive momentum building in the dollar index, with the RSI trending higher. Right now, the dollar is stuck at resistance below 103.50, and if the dollar can get above that resistance level, then it could have further climb potential to around 104.40 or as high as 105.60.

Also, we are seeing the 1-month implied correlation index moving higher, as that tells us that the implied vol of individual stocks and the S&P 500 are rising, which means that volatility dispersion isn’t working. This is important to watch because it could tell us a lot about the direction of the VIX and, more importantly, the direction of the S&P 500.


Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.