Weekly Wisdom: The Rotation Sensation

Greetings fellow traders and welcome to your July 18th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

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

Taking a look back on this week, July 15 – July 19:

• Markets have had a volatile week as we move into the middle of July and the bullish seasonal flows from the beginning of the month tend to die down.  
• The week began with very strong rotational flows, seeing the $IWM and $DIA trade higher while the $QQQ and $SMH traded lower.  
• The second half of the week turned from rotational flows to a bit more of overall net selling, as the weekly charts on all indices were a bit extended to the upside and needed a correction to come.
• Data for the week began on Monday with a miss for the Empire State Manufacturing Index coming in at -6.6 vs -5.5 expected.  
• Tuesday delivered some upside beats for retail sales m/m at 0.0% vs -0.3% expected, as well as core retail sales m/m coming in at 0.4% vs 0.1% expected. Import prices were a miss at 0.0% vs 0.2% expected. Later that morning, business inventories m/m were a miss at 0.5% vs 0.4% expected. The NAHB Housing Market Index was also a slight miss at 42 vs 43 expected.  
• Wednesday started off with a beat for building permits at 1.45 million vs 1.40 million expected, as well as a beat for housing starts at 1.35 million vs 1.30 million expected. We then saw a beat for industrial production m/m at 0.6% vs 0.3% expected, as well as a slight beat for capacity utilization rate at 78.8% vs 78.5% expected.  
• Thursday’s weekly unemployment claims were a miss at 243,000 vs 229,000 expected. The Philly Fed Manufacturing Index was a beat at 13.9 vs 2.7 expected. Later than morning, the CB leading index m/m was a slight beat at -0.2% vs -0.3% expected.  
• Friday, July 19 does not bring any meaningful data to end the week, but there will be more Fed speakers throughout the day. 

Here’s what we are eyeing next week, July 22 – July 26:

Level Highlights:

• $SPX futures printed yet another new all time high this past Tuesday up at 5721, but has since backed off of those highs with the Nasdaq / $QQQ seeing some outflows.
• $SPX futures closed the past Tuesday strong with a new closing all time high of 5717, but a sharp reversal followed on Wednesday which saw the index trade down from an open of 5715 to a close of 5639.  
• Weekly charts had become a bit extended on the new all time highs that printed earlier in the week, so a bit of a correction should not be feared just yet.  
• Some support levels to watch on lower trading for $SPX futures can be found at 5600, 5570, and 5520. 
• A close below 5500 on $SPX futures will technically put an end to the daily uptrend that has been so powerful and lasted throughout the summer.  
• $VIX has woken up with the rotation and selling that took place this week; 16, 17, and 18 are all prior inflection points to pay attention to, which may trigger further net selling if those levels are to break. 
• Traders should also watch the 96 and 100 levels for the $VVIX while trying to gauge whether further selling is to come into markets. 

Upcoming News:

• Monday, July 22 does not bring any meaningful data to start the week off.  
• Tuesday, July 23 starts data for the week off with existing home sales and the Richmond Manufacturing Index at 10:00 a.m. ET.  
• Wednesday, July 24 starts off with updates for the goods trade balance and prelim wholesale inventories m/m at 8:30 a.m. ET. We’ll then see flash manufacturing PMI and flash services PMI updates at 9:45 a.m. ET, followed by new home sales at 10:00 a.m. ET.  
• Thursday, July 25 brings the update for advance GDP q/q, weekly unemployment claims, advance GDP price index q/q, durable goods orders m/m and core durable goods orders m/m all at 8:30 a.m. ET.  
• Friday, July 26 ends the week with PCE, core PCE price index, personal income m/m, and personal spending m/m at 8:30 a.m. ET. These are followed by revised University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET.  

Here’s Your Chart of the Week:

Via Bloomberg: They say a picture is worth a thousand words; the Russell 2000 had the best week of the entire calendar year with the strong rotational flow that came into markets that began last week.

Source

SPY Daily Update:

$SPY daily chart saw new all time highs earlier this week but has since reversed lower – 554 is now resistance on bounces, while 550, 546, and 542.50 are support levels to watch for on any lower trading.

SPY Weekly Update:

$SPY weekly chart is risking seeing a bearish engulfing candle this week, something traders should certainly take notice of. That being said, the uptrend does not break until we get a weekly close below 542.50.

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-Patrick Hawe

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Patrick Hawe’s current positions:

*As of 2:53pm ET July 18, 2024

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