[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] The second quarter of 2024 is here, and so far the sellers are running the table. Bonds are selling off and the prospect of a 5% 10-year Treasury yield looks closer than it has in a long time. Investors there have made their decision on inflation. Stocks are bleeding out, too, led by the tech sector; the NASDAQ has been hit much harder than the S&P 500. On the other hand, precious metals are showing impressive strength, and the energy sector is one of few gainers out there. That tells me we should look for outperformance in traditionally defensive investments in the coming weeks. Here’s what I see…

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] Equities had a decidedly mixed day – just three of 11 S&P 500 sectors finished higher by 4 PM. The energy sector, as tracked by the XLE ETF, was one of those standouts, and it’s easy to see why: Geopolitical risk and tension is continuing to increase, and supply is getting thin. Oil in particular looks bullish. Gas prices could hit or exceed $4 a gallon by spring. That’s inflationary, and that’s spooking bond traders – bonds sold off steeply as yields spiked. I think energy options are where it’s “at” right now, so that’s what we’ll look at today…

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] —Inflation in-line but not dead —anemic volume at the end of the quarter —NVDA and tech squeeze full stop —XLK under performs INTC, AAPL, TSLA —correlation higher —financials and energy —watching retail —time to hedge SPX Expected Move — –last week — 54.11 (4–day expected move) –next week– 62.52 (5–day expected move)

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] It has been apparent to most investors that AI and specifically NVDA has driven markets to record highs. NVDA is finally showing signs of slowing and even a potential trend reversal pattern, a double top. If the Double Top is confirmed, we expect correlated moves in indexes and individual stocks. Today we discussed the potential pullbacks and reversals in major index like the NASDAQ and S&P 500. We looked at individual stocks including ORCL, AVGO, SMCI and CRM as well as less aggressive ETFS like SMH and IGV.

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] Market radar is strongly honed in on the bond market right now. Whether it breaks to the upside or downside will likely be a major determining factor in terms of sector leadership in the stock market. Will growth, tech, and communications continue to outperform or will we start to see the inflation trade reignite in coming weeks?

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] One of the sources of fuel for a market rally is volatility selling. However, it’s the selling that ultimately leads to the last squeeze higher before the fall. Looking at term structure of volatility and skewness is a way to identify volatility expectations and hedging. Over the past few days, these vol-based indicators have been the most bearish since mid-December of last year. As NVDA retests it’s all-time high, this may be a warning to take profits before the next correction.

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] I’ve been absolutely pounding the table on this for more than a week now. The correlation between Big Tech market leaders and the S&P 500 is getting stronger, not weaker. And that means a correction will be knocking on the door any second now. Higher SKEW and much lower volatility points to that. Low options volumes point to that. The gamma squeeze trade is dones-ville. It’s all pointing toward change – or trouble, if you’re not prepared. Let’s look at what it could take to get us all the way there – and what we should do about it in the meantime. Last week’s five-day expected move was 81.08 – we’ll look at how we did and what we can expect next week. We’re also going to look at a couple of specific stocks I think back me up –

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] The infamous Fed Dot Plot showed most committee members are forecasting three rate cuts in 2024. For those of you who’ve been hiding out in the woods since 2009, rate cuts can act like rocket fuel for many, many stocks… and poison for others. And we could get three hits of it this year. And this isn’t counting 2025. So we’re going to look into three sectors that will be rocked up (and down) by cheaper money, and three specific stocks in each sector to trade. I’m looking at a commercial REIT in the data center segment, a bearish play on a financial that can’t rally with its sector-mates and a tech stock operating in the Cloud, the “Internet of Things” space and, you guessed it, AI. There’s a lot to get through here, so let’s get started…

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] Another Fed Day has come and gone… and what a dud. Not only has the S&P 500 fallen off its daily highs, but – big picture – the central bank has completely failed to curb inflation. That’s despite all the cheerleading they’ve done over the past, I dunno, three years. More to the point, that increasing correlation between the big tech mega-caps and the S&P 500 I’ve been calling out is… still increasing. That’s going to lead to a big change in the market. The buy-happy crowd that’s been gobbling up inflated assets at ridiculous prices is probably going to get wiped out. I’m not just ranting – I’ve got the proof right here…

[video_player type=”embed” style=”1″ dimensions=”640×360″ width=”640″ height=”360″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”][/video_player] We’re seeing some powerful sector rotation just under the surface of the market… There are huge opportunities to profit now in energy, basic materials, the industrials, and consumer staples. That’s the good news. The perhaps-not-so-great news is that we’re now seeing the kind of price action typically witnessed in later stages of the equity market cycle. That means we might be getting closer to the end of it all. And just to make it interesting, Fed Chair Jerome Powell and the FOMC will give remarks tomorrow afternoon. While no one is seriously betting on an imminent rate cut, an overly hawkish tone could throw a couple of swimming pools’ worth of cold water on the bulls. Let’s look at this from all the angles right here…