US Equities: Mixed Signals, Inflation, Waiting Game

The June E Mini S&P 500 futures contract traded well early yesterday morning before the cash open. Cash traders, however, had different ideas when the opening bell rang in New York.

The June E mini S&P 500 (ESM2021) traded as high as 4230.00 right at 9:31 AM yesterday (June 1) as cash trading began. Traders were waiting on the PMI data release at 10:00 AM. Sellers came into the market right at the cash open, selling it down to 4213.00 in the minutes leading up to the data print. The data signaled inflation once again, with the PMI data printing 62.1, above market expectations of 61.5, and above the last measure of 61.5. Inflation became a concern here. Will the Fed eventually raise their overnight Fed Funds Rate? Will yields rise? This data print created uncertainty in the market, and the ESM2021 settled around 4199.75 at 4:15 PM ET yesterday.

This type of price action came as no surprise to me, as the prevailing macro theme of this week seems to revolve around Friday’s Non-Farm Payroll data. As mentioned yesterday, I view this type of trading week as “sideways trading in a wide range in the $SPX until the market gets a read on the NFP data.” Let’s see how this plays out heading into Friday.

The Cash $SPX settled almost flat, giving up 2.09 points (-0.05%) on the day. That’s what I would call sideways. The $VIX , however, tacked on 6.80%, furthering the potential of yesterday’s weekly outlook for volatility to get bid up this week, as the market waits for Friday’s jobs number. S&P 500 options implied volatilities got more expensive, with the uncertainty of Friday’s jobs number being a partial contributor.

Figure 1 - June Emini S&P 500 Futures 7:30 AM June 1, 2021 - 6:46 PM June 1, 2021 One-Minute Candles Source tradingview.com

A picture is worth a thousand words. In the above chart, we can see how the cash S&P 500 open was sold, and how the PMI print was sold.

However, with muted trading expected this week in a range, this doesn’t seem too surprising. The $SPX closed flat on the day, and the $VIX caught a bump. So, what would be the expected ranges for Wednesday’s and Thursday’s session?

We could actually consult the weekly options and determine the price range probabilities for the week, but that will include Friday trading data. Let’s just examine the recent ranges to get an idea for Wednesday and Thursday.

Figure 2 - S&P 500 Index $SPX March 25, 2021 - June 1, 2021, Daily Candles Source stockcharts.com

We can see that today’s high prints in the index (4234.12) at the US cash market open were getting close to the all-time high of 4238.04, set on May 7th. This level was denied and seems to lend some credibility to a rangebound market ahead of Friday’s NFP data.

The 50-day SMA sits at 4121.01 and this coincides well with the lows of the range towards the end of April, near 4118.00 - 4125.00. These figures could give us a range to look for over the next couple of days. Could volatility strike before the data? It could, however, I would expect it to be short-lived and mild. Nobody knows for sure, but let’s look for a rangebound $SPX on Wednesday and Thursday.

Figure 3 - Invesco DB Commodity Index Tracking Fund DBC April 1, 2021 - June 1, 2021, Daily Candles Source stockcharts.com

With inflation back in the spotlight yesterday, commodities rose overall, as can be seen in the above daily chart of DBC . In addition, there is news of the JBS Beef Plant Cyberattack that did not help with the inflationary theme. However, there is now news that the plans are coming back online.

The daily candle that was formed here could be an abandoned baby bear or exhaustion gap; note the gap up with the open and close levels almost identical. We will have to see how commodities trade tomorrow to see if this new high holds.

Now, for our premium subscribers, let's recap the markets and key levels that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

*******