Weekly Wisdom: Future Rate Cuts Questioned

Greetings fellow traders and welcome to your May 26th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Let’s get to what we’re currently seeing in these crazy markets and what we have our focus on going forward.

Taking a look back on this week, May 22 – 26:

• $SPX suffered quite a volatile week with many different events moving us. We started off working on confirming the 4200 breakout that began late last week, but ultimately failed mid week as we traded and closed below confirming levels we should have held.  
• Flash manufacturing PMI was a miss Tuesday morning at 48.5 vs 50.0 expected, while flash services PMI beat at 55.1 vs 52.6 expected. New home sales were also hotter than expected at 683k vs 665k expected, while the Richmond Fed manufacturing index was a miss at -15 vs -8 expected. A mix here but the new home sales beat was certainly notable.
• Wednesday saw the Fed minutes released around some hawkish Fed speak throughout the week dialing down the future rate cuts markets are expecting. We have been highlighting the big difference in what the Fed says they will do vs what markets have been pricing in, and taking those rate cuts out of the forecast should in theory tighten money back up.  
• Thursday had a beat for GDP q/q at 1.3% vs 1.1% expected. Unemployment claims was also a beat with a lighter number of 229k vs 249k expected.
• ICYMI: On Wednesday *Waller: Says April PCE Inflation, May CPI Data Will Be ‘Critical’
• Friday, May 26 is a busy morning bringing the April PCE and core PCE price indexes m/m, durable and core durable goods orders m/m, personal income and personal spending m/m, as well as prelim wholesale inventories m/m all at 8:30 a.m. ET. We’ll also get the University of Michigan consumer sentiment and inflation expectations index at 10:00 a.m.

Here’s what we are eyeing next week, May 29 – June 2:

Level Highlights:

• After all the hype and drama, $SPX is back into the 4100-4200 range we have been in since the beginning of April – so going on 2 months of flat, range bound trading. $SPX futures had a high of 4227 last Friday, but rolled over to a low of 4114 just 3 days later. $NVDA’s incredible earnings move boosted futures back up to make a high of 4174 on Thursday before closing right in the middle at 4151. This range has been quite the battle for traders with all the back and forth but no real progress. We now have a reaction low of 4114 which matches multiple lows made mid May and 4175 as a reaction high, also matching minor resistance areas throughout this range – so traders should look for breaks over 4175 or below 4115 for another possible range break with follow through.
• One key aspect we’ve been following and sharing here is the $VVIX divergence that has been forming while $SPX attempted to breakout over 4200. $VVIX finally cleared the 100 level this week to make a high of 111, closing Friday near 104. $VVIX above 100 means $VIX can start to expand in a much faster way, simply speaking.
• $VIX broke higher this week over 18 resistance to make a high of 20.81 – technically speaking 18 should serve as support now and the next levels $VIX may attempt to go after are 22, 24, then 28.

Upcoming News:

• Monday, May 29 markets are closed for Memorial Day.
• Tuesday, May 30 the Conference Board releases its consumer confidence index at 10:00 a.m. ET.  
• Wednesday, May 31 we get Chicago PMI at 9:45 a.m. ET, followed by JOLTS at 10:00 a.m. ET. The Fed Beige Book is then released at 2:00 p.m.  
• Thursday, June 1 ADP’s private May employment report is released at 8:15 a.m. ET, followed by weekly unemployment claims at 8:30 a.m. We then have ISM manufacturing PMI, ISM manufacturing prices, and construction spending m/m updates at 10:00 a.m. ET.  
• Friday, June 2 kicks off at 8:30am EST with the official May jobs report. 

Here’s Your Chart of the Week:

Via Societe Generale: This chart speaks for itself as many are now saying that AI will be “bigger than the internet” in what seems to be fueling a new speculation rally

Source: https://twitter.com/WallStJesus/status/1660570633560903683/photo/1

SPY Daily Update:

$SPY daily chart has seen quite a volatile week on the daily chart but is now back in the range we have faced since the beginning of April. We nearly saw a breakout, followed by a breakout failure, which was then saved a bit with $NVDA‘s help.

SPY Weekly Update:

Believe it or not, despite the volatility, $SPY is actually giving an inside weekly candle this week as we are back into the 410-420 range. 

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-Patrick Hawe

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Patrick Hawe’s current positions:

*As of 4:00pm ET May 25, 2023

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