As of last week, we are officially in a bull market.
Last week, the CFTC’s Commitments of Traders Report also released numbers on the S&P Futures contracts. Smart money appears to favor longs, while non-commercial is still overwhelmingly short.
Compared to the previous 5/30 filing, commercial money is 85k less net long, and non-commercial is now 90k more net long. With increased open interest, this may suggest that traders are beginning to cover shorts, giving room to squeeze the market up some more.
The VIX has plummeted to the low of the past few years, and the Fear & Greed index has pumped into extreme greed over the past month.
With the VIX and F&G index at lows and highs respectively, it is a warning sign for the contrarian investor to get ready for a macro-trend pullback. Something to look for as confirmation could be the next CFTC COT report. If smart money continues to pull back in bullishness or traders approach neutral, a downturn may be in the works.
For a more immediate catalyst, this week has CPI news and the FOMC meeting. Depending on how the numbers turn out, there could be a reversal.
At the moment, the market is pricing in a 74% chance of a pause and 26% chance of a hike. If the hike happens, there is a good possibility that that becomes the catalyst for a reversal.
The 6/2 JOBS report shows the continued tightness of the labor market, so it is definitely possible that a rate hike is in order. However, if rate hikes are paused, the other 26% will have to follow, generating a modest pump into a resistance line.
/ES
On the daily, we can see that open interest has been in an uptrend this past year. Volume has also supported the price trend. With rising prices, there appears to be a bull case for more aggressive buying.
In premarket, we gapped up 35 points, past the first resistance trendline. Approaching the 4360-4500 1Y zone should be significant resistance. If we break into the zone and through 3Y1D supply at 4405 by Thursday, then we could be on our way to all-time highs. A rejection within the next couple days gives way for a 4325 gap fill into an attempt for 4300 1Y1D supply off that momentum.
As of writing, premarket appears to be holding steady in its channel, though the lack of volume gives ambiguity and means it’ll be more informative closer towards market open.If it holds steady into open, an early morning test of the 4360 zone is in the cards. Otherwise, a slow drift down could mean a test of the gap zone.
Since the main news events will be on Tuesday and Wednesday, I expect, a relatively flat day tomorrow. The FOMC decision will likely be the catalyst for either a blood-red gap down or major push through the 4360 zone.
Bull Case:
Test of 4360 with max move into the zone to test 4370 resistance.
Bear Case:
Break out of 4352 premarket support into test of 4350, with max possible move to 4340.