Last week was a week of volatility heavily influenced by hedging flows, as evidenced by the sharp rises and falls of implied volatility measures, such as the . This makes it difficult to understand the underlying message in the market.
Friday was hard in some ways because it left me with a certain feeling of defeat. Not because the stock market rose 1%—which was pretty much to be expected given short-term implied volatility levels—but rather because rates didn’t rise and the market weakened.
This was not what I expected. But as I reviewed some charts over the weekend, I noticed some interesting patterns that developed. Firstly, I noticed that the bull flag of the broke down and that the DXY reached the 50-day moving average and bounced off it.
It was also the same setup for the pair, which fell to the 50-day moving average and rebounded to close the day higher.
The same thing happened with the , which is strange because it has been greatly influenced by the intervention of the Ministry of Finance and the Bank of Japan.
We also saw the same in the performance of the . The last two times they have shown an uptrend, the 50-day has served as support, and they have usually registered new highs. Now, that doesn’t mean it has to happen again this time, but that has been what has happened in the past.
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On Friday, the reached a resistance level at the 50-day moving average.
The also reached the 50-day moving average on Friday.
The same thing happened with the index.
Fed members to appear this week
This suggests that positioning might have had a lot to say in what happened the final two days of last week, especially if investors were positioned for a more hawkish-than-expected Fed and a red-hot jobs report.
Normally, in my experience, algorithms and programs use these moving averages a lot. The Fed said a lot of what was expected, but Powell could have been more hawkish and he wasn’t. But one thing we should consider or that I’ve noticed is that Powell really likes to play middleman these days, and since Fed spokespeople appear in public so often these days, Powell doesn’t have to be so eloquent anymore.
You don’t need to be the one to “bring down” the market. Let your spokespersons speak for themselves and let the data do the hard work. However, what comes out of these meetings is critical for the market, and the turning point of this meeting is that the Fed has officially acknowledged that the inflation process has stalled and that rate cuts will take longer to arrive.
That said, I’m curious to see how Fed spokespeople weigh in for or against rate cuts this week. I suppose there will be more members who talk about fewer cuts and some members who talk about no cuts. This implies that the points for the June meeting will move upwards.
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Last week’s data did not support rate cuts, and employment data may have been somewhat skewed in April. I suppose there will be more members who talk about fewer cuts and some members who talk about no cuts. This implies that the points for the June meeting will move upwards.
Jobs report may have been biased
Some have noted that with the arrival of Easter this year in March, seasonal hiring that would normally occur in April occurred in March, driving hiring in March and weighing it down in April. If the bimonthly variation rate is observed in , a decrease is observed with respect to the previous value, but it has remained within the same range since December.
Meanwhile, the six-month annualized rate of change in wages was practically the same as since December. Therefore, perhaps the idea that the Easter holidays came earlier than normal has something to do with it.
Apple (NASDAQ:) retains its gains
As for Apple, I’m surprised it held onto gains on Friday. Although it closed far from its highs, I would be curious to see if it goes back below $180, since it was the level with the most gamma heading into Friday. This appears to be the case again this week, with the $185 level being the call wall or resistance level.
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Nvidia (NASDAQ:) faces a difficult week
Meanwhile, Nvidia’s $900 appears to be a great resistance level, with a break of $900 opening a path towards $950 based on gamma positioning. But there is a lot of gamma built up between $900 and $950, and I think that will make Nvidia’s rally very difficult this week. This likely means that $900 is more likely to meet sellers than buyers.
But we’ll see.
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