Slim Beautiful Bill
Hello All,
Following today, it’s been a bit of a sporadic week in regard to news flows… initially, the day kicked off with positive comments & progression between the U.S. & China following Trump’s comments on the phone call he had with Xi & then as the day progressed, both Trump & Elon had a fallout with each other… Trump wants his Big Beautiful Bill pushed through whereas Elon wants to cut spending & more so wants a ‘Slim’ Beautiful Bill as he called it today… nevertheless, we do have NFP #’s tomorrow to round off the week & as of now, small-caps surprisingly enough have been the best performing of the indices, +142bps on the week whereas the Dow has been the relative laggard on the week although still sits higher by 24bps.
Just over a month ago, we wrote about hard assets & the structural framework behind hard assets given recent events & future outlook along with some historical perspective as well… you can check it out below for those whom may have missed.
Hard Assets in an Era of Soft Money
As global central banks quietly rearm their stimulus arsenals and fiscal deficits spiral past the point of discipline, the foundations of the global monetary order are beginning to crack. Amid this shift, one question looms larger than ever: Are we on the verge of a new commodity supercycle?
We also published the follow up educational piece which has been highly requested and majority of the topics covered were all suggested by you all, so I hope you find good benefit.
For those who may have missed, a link to Educational Piece Part: Deux can be found here.
For those who may have missed the first educational piece, I included the range of topics covered below along with a link to the piece for those who would like to go back and read:
- 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
A link to the first educational write-up can be found here.
I’m going to keep tonight a bit shorter ahead of data tomorrow, but today was a bit of an odd day all around, as intraday, there was a bit of a fallout between Trump & Elon. And as some claim there is a 4-D chess move here, it simply looks like Trump wants his BBB (Big Beautiful Bill) & no one will get in his way, whereas Elon opposes the BBB & is adamant on reducing spending. Following the fallout, as I’m sure you all know, Tesla suffered one of its largest intraday declines ever & at one point was down almost 17%… merely 200B in MC wiped out in one day. And because of the dramatic move, oddly enough, Tesla contributed to the majority of both Spooz & the Nasdaq’s losses intraday, as despite the decline & reversal off the highs, breadth in general held up fairly well all things considered.
In terms of other news, earlier this week there were rumors that Trump and Xi would have a phone call, and sure enough, they did. More importantly, the call was confirmed by Chinese news media, and overall, the tone was very positive. Trump stated that talks between the U.S. and China remain well on track, and that the U.S. has a deal with China; they just want to make sure all the complexities are properly ironed out. Xi even invited Trump and the First Lady to China, and Trump responded by saying he plans to visit. All in all, a much bigger development, as this arguably removes more left-tail risk, assuming today’s talks don’t fall apart, which seems unlikely given the positive tone and comments both Trump & Xi shared.
- SPY
In regard to Spooz, a continued theme these last few weeks has been each and every perceived ‘negative’ headline getting bought & as we mentioned above, but despite the indices & Spooz specifically posting quite a reversal off todays high, a good portion of the move was due to the weakness in Tesla hence its hard to draw TOO much of a conclusion in regard to today’s action & of course we still have NFP #’s to get through tomorrow as well which holds a bigger interim weight.
Nevertheless, despite Spooz making new highs today and officially tapping 6,000 in the cash session, there is a growing negative divergence with the Advance/Decline line, as shown below. While the index hit a new high, the A/D line did not, which can be a subtle sign of weakening breadth. Not necessarily something to panic about, but the divergence is worth keeping an eye on as it may suggest narrowing participation under the surface… worth being mindful of if this divergence doesn’t fix itself.
In respect to Spooz, initially coming into the week, our expectation was as long as 5850ish remained firm, we’d likely see a push higher into 6k & Spooz finally got the official tap today & sure enough, it even marked today's high. I do still think 6k will likely be a more firm resistance in the interim, but again following todays action, I’d attribute the reversal to more noise over signal given the decline was nearly entirely driven by the fall in Tesla intraday. Nevertheless, we do still have NFP #’s tomorrow & as of now, jobs are expected to come in at 125k vs. 177k prior & the UER is expected to remain unchanged at 4.2%. Not necessarily expecting any surprises in terms of the change of direction of hard data although maybe there is a bit of noise given the report is for April which as we know had the drama of Liberation Day / Tariff hysteria, but otherwise, I do think that because of the administration's quick actions to issue a delay shortly following Liberation Day along with labor participation continuing to trend upwards & lastly, labor supply having generally tightened due to the administrations immigration policies, the labor market in general should continue to remain more bifurcated / economy will be fine although there may be a few blips in-between.
Bigger picture, overall not much has changed… volumes in general have been lighter as we enter Summer & as long as hard data does continue to hold in, it’s not hard to see a continued slow churn / grind higher & if Spooz were to meaningfully firm up above 6k, there isn’t much stopping Spooz from working back higher towards 6100ish / prior ATHs. And after-all, as we stated near the lows, the #1 factor MANY got wrong was this decline was nearly entirely self-induced & with the admin cornered, any sort of pivot was going to lead to this bigger rally / large unwind of the decline & sure enough, here we are less than 200-handles away from ATHs yet positioning STILL remains relatively light although nets have certainly increased off the lows but there still is plenty of length to be added… especially in an environment where hard data in general has held in better than most have anticipated & for now, inflation data has remained relatively tame (plenty of tail-risks having been removed as well).
Nevertheless on the contrary, if these last few days did prove to be a false breakout out of this month long consolidated range Spooz & the general indices have remained contained within, to get any sort of downside traction, bears still need to take out 5850ish (EU Delay bull-gap), as otherwise, indices & Spooz more specifically will likely continue to remain more bifurcated. However, faltering below 5850ish should open the doors for Spooz to fill the entirety of the EU bull-gap which also happens to coincide with the 200d & China tariff pause bull-gap as well, so in general, a ton of supportive confluence still remains below & even after today, indices still look fine / constructive all around despite the intraday noise.
- QQQ
In respect to the Q’s, initially coming into the week, there was concerns of a potential news failure given the great Nvidia report this past week yet the entirety of the rally in the Q’s & Nvidia faded, but sure enough, that has since been invalidated as the Q’s ended up making a new local high this week. Again, as we discussed earlier but as with all of the indices, all perceived ‘negative’ headlines have led to each and every dip continuing to be bought. HOWEVER, given the reversal off the highs in the Q’s today following the fallout between Trump & Elon, as we noted earlier but the decline in Tesla intraday was the biggest contributor in terms of losses for the Nasdaq intraday so its hard to make TOO much of a conclusion with todays action, but nevertheless, the Q’s didn’t close with the prettiest daily candle as 530ish continues to remain as a more firm resistance on the upside but I do think as long as 515ish (EU bull-gap from this past week) continues to remain supportive (coincides with 20d as well), bulls will continue to maintain an interim edge BUT if we were to see it falter as support, we likely will see the Q’s fill the entirety of the bull-gap (into 508ish) & on the bigger picture, the larger bull LIS remains around the China-pause bull-gap from a few weeks back near 501ish (confluence of 200d & 100d just below as well), and ultimately, if the bull-gap is maintained as support and the Q’s can continue to base and build higher above 496 / 501ish, we likely will continue to see the Q’s supported with dips continuing to be shallow and bought.
/DXY
Not too much to discuss in regard to the dollar as it’s been a relatively quieter week BUT the fallout between Trump & Elon once again adds to the U.S. credibility issue… two of the biggest individuals in the world having a ‘tweet’ fight publicly isn’t the best look for the U.S.
Nevertheless, in terms of economic data, it has been somewhat mixed; PMIs, ISM, and JOLTS have held up fine, but yesterday’s ADP print and today’s jobless claims report raised a few eyebrows. Much of the rise in initial claims is likely due to seasonal distortions, as claims tend to be more volatile around the Memorial Day holiday. As shown below, seasonally adjusted initial claims have historically moved higher between spring and summer. Importantly, non-seasonally adjusted claims remain muted, suggesting the underlying strength of the labor market remains intact.
In terms of other news, as we spoke about earlier but Trump did in fact have a call with Xi which the comments all around were generally skewed positively. The one overhang is yesterday was supposed to be the day that each & every country had to bring their best deal forward to the U.S. for trade yet we haven’t heard anything related to that notion… as we’ve discussed but given the U.S. isn’t holding much negotiating leverage, there isn’t much of an incentive for Country X to try and strike a deal & or make an initial move but we are rapidly approaching the expiration date of the 90-day reciprocal pause & if the administration is indeed desperate with deal-making, that puts the U.S. further in a position of weakness in terms of negotiating leverage as the U.S. will likely be much easier on terms as the administration would likely rather just push deals through (again, likely why many countries are potentially refraining themselves of making the first initiative).
Moving ahead in regard to the dollar more specifically, again, we do have NFP #’s tomorrow & in general, I think the reaction in the dollar will be VERY important. The dollar LOVES to bottom & top on news events / economic data, so as an example, IF were to get a great jobs report tomorrow / better than expected, one would assume the dollar rallies… however, if the dollar were to pop then proceed to selloff as the day progressed thus unwinding the upside move, it more so just emphasizes that pressure on the dollar remains to the downside as each and every pop continues to get sold. For any sort of material rally, I do still think the dollar needs to firm up above the 20d / 100.5s for any sort potential countertrend rally to ensue up towards 102.8 / 103.65s for some mean-reversion, but otherwise, until the dollar manages to firmly close above 100.5s / 20d, expect pops to likely continue to be faded.
I still haven’t changed my stance on the dollar & continue to feel that the path of least resistance remains lower mostly due to Lack of clarity on trade policy / Fiscal irresponsibility / U.S. negotiating leverage weakening / Dollar having been over-owned & the general TLDR, U.S. credibility has been damaged given all of the events this year (Damaged even more today following the public fallout between Trump & Elon). If we were to continue to see the dollar fail to stage a rally, again, do think we need to see DXY ultimately falter firmly below 99 (Finally managed a close below today) to start working toward another leg lower towards the Mid / Low-90s which is also supportive of what the administration wants given it narrows trade deficits.
/TNX
Bonds have had a relatively good week & ever since the MOF headline from the prior week, bonds have continued to remain firmly bid. The other standout headline from Japan specifically is that BOJ is looking to already taper QT next year… once again, supportive of bonds & CBs are clearly starting to panic thus the panic in bonds has come to a halt, for now at least.
In terms of the remainder of the week, again, tomorrow we have NFP #’s & jobs are expected to come in at 125k vs. 177k prior & the UER is expected to remain unchanged at 4.2%. Bonds are higher on the week but we did see quite an intraday reversal off todays highs… as expected, 10s once again found support near 4.35ish which does generally make sense for bonds to remain within this recent balance leading up to tomorrows NFP print. Nevertheless, if we were to see a weaker NFP print, I do think the recent rally within bonds could extend a bit further leading the 10Y lower towards 4.25 / 4.2ish, but its hard to see much further upside given the overhang of Trump’s BBB & in general, economic data along with hard-data more specifically has continued to hold in much better than most have anticipated. On the other hand, if NFP #’s were to be inline or even hotter than expected, that likely will push back rate-cut bets further… especially if tomorrow’s print holds in given its for the month of April which was during the peak of the tariff hysteria so MAYBE companies were reluctant to hire / not many jobs were added, but we’ll have a more firm answer tomorrow.
Again, individuals continue to be very emotional by each and every move in bonds, when in reality, bonds have remained rangebound for nearly 3 years now & the best trades has been the ones of fading extremes… & for a more interim established range, I do think you can argue 4.2ish is a low-end whereas 4.65-4.7ish is a high-end (broader range being 3.65 / 3.8ish low-end whereas 4.75 / 5.00ish is the high-end).
