Giants Drink First
Hello All,
It’s been a rather quiet week in respect to economic data / event risks & focus has instead shifted towards recent commentary from Fed speakers following this past weeks soft jobs report along with the larger revisions which has put a September rate-cut on the table as a base case & because of the generally dovish commentary / rate-cut fever, Small-caps have performed quite well on the week, +218bps, but the Q’s have ended up taking the highlight of the week (+266bps) following the announcement of semiconductor tariffs yesterday as the key factor is EVERY single major semiconductor company is exempt since all have committed to invest capital into the U.S. (Hence the tariffs are a nothing-burger & thus another instance of interim tail-risks having been removed from markets).
Earlier on in ‘24, a series we had started was ‘Educational Pieces’ with each including a wide variety of topics, some even suggested by you all & we’ve finally decided to release Part Trois.
Nevertheless, for those whom may have missed the first educational piece along with the subset of topics included:
General background / knowledge on all option strategies
In-depth talk on risk / reversals & how to go about expressing / utilizing them
Options Structuring
When to used naked calls / puts vs. spreads
Choosing expiration dates
Identifying key pivots / supports / resistance zones
General briefing on stock gaps
What to look for in regards to fundamentals
Implementing fundamental / macro / technicals into a trade
Hedging
Creating risk/reward setups
Taking profits / managing losses
Overall Process
Book recommendations
I include a link here to the original.
And given the amount of positive feedback we had received on the first educational piece & how helpful it was for many, we decided to release Part Deux earlier on in ‘25 & for those who may have missed, a link to Educational Piece Part: Deux can be found here.
And then FINALLY, a link to the last part of the series, Part Trois (for now), can be found here.
Psychology is the silent driver of performance & your edge often comes not from knowing more but from managing yourself better.
- SPY
To jump right into Spooz, since the gap-up on Monday, it’s been a relatively choppier week along whilst being a generally slower one as well given there hasn’t necessarily been much economic data of significance & or event risks, but nevertheless, the big news today in which initially sparked a rally / gap higher within the indices was semiconductors being exempt from the sectoral tariffs as long as some sort of capital is committed to invest in the U.S. (So essentially every major semiconductor company is exempt). Again, another instance of interim tail risks having been removed which has been a continued theme & more so has contributed to the slow unwind within vol & focus has instead shifted back towards the economy with growth remaining in focus rather than inflation & tariffs.
In taking a look at Spooz, again, with this past Friday’s bear-gap having been filled earlier on in the week along with a bull-gap having been established which has yet to be filled, it’s more so a bigger testament to how strong the current underlying trend remains (dips remaining shallow & bought). Spooz even ended up closing above the 20d today, but nevertheless, if we were to see Spooz continue to remain firm above the 20d / break higher above 6350ish, there isn’t necessarily much standing in the way from Spooz going on to trek higher towards new ATHs (barring a scorching CPI print next week) as the main interim tailwind continues to be supportive commentary from the Fed as growth is being chosen over inflation once again / financial conditions continue to loosen thus helping to bifurcate & being generally supportive of risk-assets as well.
I would argue in the interim, the main LIS remains around 6275ish (coincides with bull-gap made earlier on in the week), but ultimately, for any sort of firm & sustainable downside / a break lower to occur, we need to see Spooz take out 6220ish which should then lead to a standard backtest of the prior ATHs near 6175 / 6145ish below, but otherwise, barring a collapse in economic data & or scorching inflation data, the general trend of dips continuing to remain shallow & bought will likely remain & the increasing risks of those whom remain UW equities as we start to near Q4 will continue to become more and more of an issue in terms of performance chase & if there is no meaningful correction by the end of September (3-5% range is standard / generally bad seasonality), again, it starts to put serious performance chase pressure on Institutions / HFs & those whom have remained UW throughout the entirety of the rally since the April lows.
Despite the indices having rallied higher this week, the % of stocks above the 20d still only sits at just 37% which still is generally extended on the downside (oversold).
Part of the reason in terms of why the % of stocks above the 20d has hardly budged is due to the narrow / lack of upside participation & today for instance, liquidity was being sucked out of S&P 498 & really, AAPL for the most part along with NVDA / Semiconductors was what helped keep the indices afloat as the damage under the hood painted a more softer picture.
And again, in terms of economic data, there isn’t necessarily much to recap as it’s been a generally quieter week, but nevertheless, the dovish flurries from Fed speakers has continued as reiterated by Kashkari:
- Fed's Kashkari: Reversing course on rates may be better than waiting.
- Fed’s Kashkari: Two rate cuts this year still seems appropriate.
Why is this significant if Kashkari is just stating the same as other Fed members? Because he’s generally been perceived as more hawkish so dovish commentary out of him is a bit of a bigger deal in terms of how the Fed is viewing this most recent jobs report along with revisions & again, choosing growth over inflation.
And to reiterate as I think this was arguably the most important statement / headline of the week:
- Fed's Daly: Job Market Softening, Further Weakness Unwelcome; No Sign Tariffs Driving Persistent Inflation; Must Act On Likely Outcomes, Not Certainty
Daly is being loud & clear that the Fed needs to act on recent softening of growth / labor market & thus far, there has been zero signs of tariffs having driven persistent inflation thus the Fed needs to act now (resume rate-cuts to support growth) instead of trying to predict an outcome (tariffs providing persistent inflation).
Growth > Inflation until proven otherwise as it has been since the late ‘23 pivot.
And given the continued dovish commentary from Fed speakers this week, we’ve seen the odds for a September rate-cut rise slightly further towards just under 93% & CPI next week will be quite an important datapoint that could shift these odds slightly, but barring a scorching print & given it’s generally expected that inflation will rise this next print, the case for a September cut will likely remain & the bigger question will likely boil down to whether or not it should be a 25bps cut & or 50bps which will be generally dependent on the August jobs report.
In terms of other news, we did have the standard jobless claims report today & claims once again continue to remain relatively muted whilst continuing claims made a new cycle high… the same story of the slow to hire / slow to fire remains.
And finally, the last biggest piece of news is Stephen Miran is joining the Federal Reserve board until January ‘26. Why is this a big deal? Well, Miran is pretty much one of Trump’s right-hand man… given Miran’s recent commentary (Fed needs to cut / Inflation isn’t an issue), it’s fairly clear his views are perfectly aligned with Trump hence Trump choosing Miran isn’t necessarily a surprise, but more so adds to the continued case of markets pricing in more easing ahead.
