Hey folks, I have told the Members of our Trader User Group this month could very well dictate how the summer months will play out regarding price action in the markets. We have a few key items on every trader’s mind and with one behind us (the Mexican Trade Tiff) we have to big events to follow….and how you position your portfolio could make the difference between nice solid profits or losses…
This Week’s Sound Bites;
• This is a big week for Central Banks; from the US, to Europe and Japan, all will come down for the mountain tops to release their Policy Statements with our very own Power Range, Boom-Boom Powell taking front & center with a Press Conf this Wed, Jun 19th at 2:30 PM ET telling us what they’re thinking…big market bets are being placed and have been already priced in with coming rate cuts…the probabilities of a cut by July are over 86% (for the meeting this week only a 24% chance of a rate cut) and looking out over time, the Bond markets are placing bets on a total of 3 rate cuts/75 bps in all for the year…
• On top of the Central Bank focus this coming week, we have the Trade Tariffs (Mexico is now done and in the rear view mirror) and Trump’s meeting (supposedly) with Xi at the G20 around June 28th and the Iranian issues in the Persian Gulf…all top of all this the markets continue to Dance in the Rain to the tune of “Don’t Worry, Be Happy”…logical arguments can be made holding firm or cutting rates…Low unemployment at 3.6%, rising productivity and rising consumer expenditures, and markets only a few percentage points from all-time highs would suggest standing down from rate cuts, while the Bond markets are screaming for rate cuts with inverted Yield curves amid a vastly slowing global economy amid possible US/China Trade war tensions…
• Currently there is a very high speculative short positions in the VIX Futures which makes money if Volatility remains low; this shows big money is betting on more rate cuts and nothing really going wrong. The last time such a bullish sentiment was apparent in the Volatility markets occurred in 2018, one in Jan and the other in Sept and as we saw, in both instances the markets crashed and Volatility spiked dramatically…as those short positions in the Volatility futures markets unwound, it further aggravated the situation causing Volatility to only move faster and further to the upside…this would dramatically impact price action in the markets…so, if the FEDs come out and are viewed as being “more patient” or “cautious” the markets could react very negatively since the markets have already priced in 3 rate cuts/75 bps for this year…
• So it appears we have mostly a coin-flip as to whether stocks will be higher or lower thru the end of June heading into the middle of the summer months but one trade that does look good is pair trade pitting the small caps (via IWM) against the S&P (via S&P)…for the past 12 months, according to Barron’s we’ve seen the Russell underperform the S&P by over 12% which is only the 5th time in two decades this has occurred…This under performance tends to revert back quickly over a few months so the trade would essentially be on this two indexes coming back into better alignment with each other….
Enjoy this Weekly Round-Up Video;
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart !!
hpb
