Before the Bell May 25

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Tickers discussed: SPY QQQ IWM FB AAPL AMZN GOOGL MSFT NFLX TSLA SMH TLT

Before the Bell  is premarket prep for active traders. The note provides detailed stock market technical analysis focused on the indexes and FAAMGs. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Earnings 

As we move to the back half of earnings season we’ll see a lot more retailers and regional banks.  Some big names of interest this week include AZO, JWN, NVDA, APPS, SNOW, OKTA, BBY, COST, CRM, DG, WDAY

Companion Video 

The video is a detailed technical review of the indexes and FATMAAN names. All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.  Run the video at 1.25x to reduce run time.

Find the Video  HERE

Upgrades and Downgrades

A Flock of Fed Doves. 

We had 4 FED Governors out on the street yesterday saying all the right things. Gov. Brainerd drilling home the idea “anchored inflation expectations”.   THat’s what the market wanted to hear. We also saw Treasuries rise ( rates lower) which is a tailwind for tech.  In the video I point out that TLT is at an inflection level and should be closely watched here. So for now its back to “take my money” market with rebounds in bubble stocks and other beaten down sectors.  It should be noted that volume yesterday was on par with Christmas eve or a Good Friday.  Literally less than half of normal. Let’s see how far this bounce can take us. All time highs are in sight for SPY.  Let’s see how far this bounce can take us; the measured move target is $429.

Signs the Retail Crowd is losing Interest

Interesting graphic from $JPM.  After signing up millions upon millions of unemployed, but well funded, Covid lock-down victims, popular retail brokerages are beginning to see outflows. After feasting on a one-way market in 2020 and having a ball tweaking the establishment in the process, the retail crowd is starting to see what 2-way trading is all about.  It doesnt help that the weakness is centered on the very stocks most popular with the retail crowd, namely  crypto, EV, cloud, solar, ARK family, and other bubble stocks.   Retail flows are something to watch going forward.  Liquidity is liquidity and if retail withdraws their collective liquidity, there may be more pain to come in the spaces that once were their favorite stomping grounds.

Speaking of Liquidity, trouble in the Reverse Repo Market.

The overnight repo market is where the FED lends out cash for short durations, in return for paper collateral most often in the form of Treasuries.  This adds Liquidity to the system. Most remember Sept 2019 when the Repo Market blew up and the FED had to step in with “extraordinary measures”.  We also know the FED is buying $120Billion / mo. in its QE program.  Both programs ADD liquidity to the system.   Now, strange things are happening in the overnight Reverse Repo Market.  This is when banks come to the FED with Bonds, and want CASH. From the graph below, we can see its quite common for banks to do this at the Quarter End, and Year End, to “square up the books”.   Now for the first time, banks are engaging in this practice in a big way  Mid-quarter to the tune of $350B.  So in effect liquidity is being drained from the system.  ( Net Liquidity = QE Purchases minus Reverse Repo Outlows )    $120B – $350 B = $230B net liquidity drain.  The question is why?  Why do banks suddenly need all this cash?   In fact, the FED made mention of this in the recently published minutes.

From Wolfstreet ” The Fed also said in the minutes that “a modest amount of trading” in the overnight reverse repo market “occurred at negative rates.” In other words, these participants are borrowing money at negative rates from counterparties that take Treasury securities as collateral. That’s how strong the demand is for Treasury securities in that end of the market. The Fed said that this phenomenon of reverse repos trading at negative rates “appeared to largely reflect technical factors.”

The “why” is way beyond my paygrade and even has Fed experts wondering. Regardless, its the kind of thing that lends itself to you getting up one random morning “to a problem”.   I’ll do my best to keep a finger on the pulse of this.

INDEX CHARTS

A detailed walk-through of the levels and trading strategy for the indexes is given in the video ( link above) . The static charts are provided for reference. The FATMAAN names are also reviewed in the video along with trade ideas and other charts of interest.   SPY and QQQ are on Daily SELL signals. 

SPY 2 hour

SPY 30 min

QQQ 2 hour

QQQ 30 min 

IWM 2 hour

$IWM 30 Min 

 

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