A lack of geopolitical escalation over the weekend and and early week risk-rebound from oversold positions rallied risk markets across the board yesterday. Fixed income volumes were 60–70% of normal, with activity somewhat muted despite the constructive price action, with investors likely choosing to remain sidelined heading into PCE on Friday, FOMC in about 8 days, and the busiest week of SPX earnings this quarter. 44% of the SPX will be reporting this week, including of the 5 out of the ‘Magnificient 7’ megacaps. Tesla will be due on Tuesday, Meta on Wednesday, and MSFT, Google, Amazon all on Thursday.
With last week’s sell off in bonds, equities continue to trade historically rich (on an implied yield basis) versus fixed income, with data stretching back to the early 2000s. With that being said, Wall Street estimates that investors remain comfortably long with long position proxy coming in at a 4-year high, and SPX / Nasdaq short interests coming in at almost decade lows.
With that being said, the negative price action last week has inflicted a certain amount of technical damage to equity charts. SPX futures have now closed below its 55d moving age, with the next 200D MA support over 5% away. On a weekly basis, slow stochatics has flipped negative and accelerating downwards, while the monthly SPX candle chart is also threatening to print a bearish outside month against a record high. Something to keep in mind as we move through the earnings season.
In crypto, JPM sees a similar over-weight in BTC positioning based on CME futures contracts, while ETF outflows have continued for a 2nd straight week (albeit small), with mainstream momentum clearly waning. Flows on Monday rebounded slightly to a net +62mm against the risk rally, but nothing really to write home about. More to update later on in the week as market activity picks back up after a quiet Monday lull.
