Key Tactical Takeaways:
> Although major risk proxies like QQQ, SPY, IWM, HYG and the US 10-Yr yield have scope to show upside follow-through after reversing higher from critical near-term trailing stops last week, having the VIX sitting right at its short-term stop (27.6) against a backdrop of extreme net-short speculator vs. net-long commercial positioning warns of the growing potential for a spike in volatility.
> Treasuries are selling off this morning, setting the stage for the 10-Yr to test the next big area of ...% to ...%. Ultimately, 10s need to close > than this zone to signal an official break to the next measured target of 0.83%/0.84%.
> EFA (developed markets ex. N. America) have shown major deterioration in recent days, confirming the fact that these markets maintain large bear market structure since the pre-Covid highs.
Some Quick Thoughts:
With S&P 500 futures working their way back to the high-end of the 5-day range this morning, expectations of a rangy-to-higher trade appear to be taking shape to start the new week. This morning's headlines blame the risk-on tone on yet another push for hope regarding a U.S. stimulus package, as well as on overnight Chinese data that showed the economy continuing to recover from the COVID-19 pandemic. Even if you do not trust the integrity of Chinese economic data, it is worth noting that over the past several sessions both the Shanghai Composite and HANG SENG have reversed the very bearish technical setups that had been present late last month.
At least for now, House Speaker Pelosi's and Treasury Secretary Mnuchin's efforts to tease both the carbon and silicone-based traders into believing that a stimulus deal can actually happen before the election seems to be working. Whether or not you put any weight in polls after the 2016 debacle, the fact of the matter is that U.S. Senate Republicans seem unlikely to pass a massive stimulus bill, as they look to separate themselves from a president well behind in the polls.
Though light on data, investors will hear from a number of key Fed speakers during today's session, including comments from the Fed Chair as he takes part in an IMF panel (this began at 8:00 a.m.) that will also include comments from European Central Bank President Christine Lagarde. The DAX is -06% and below a bearish short-term stop at ... ahead of this event, while S&P 500 futures are +0.80, setting the cash index (SPX) up for an ... today, against the bullish short-term stop at .... If SPX registers two consecutive hourly settlements above ..., the high-end of the daily range would become ... to ....
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