Stocks steadied in the overnight session following yesterday’s wipeout into the close. The S&P 500 rallied to 3236 intraday, and gave back all and then some of its gains by the close of the session.  News broke of the California shutdown, following the release of the June budget deficit to the tune of $864 Billion!! To put that into perspective, the U.S. ran a deficit of $8-billion in June of 2019.  Wow! The Russell 2000 rallied to 1450 before ending the session back at 1402. 1450 is clearly a trouble area for the Russell/Small Caps 2000. 

Volatility– As mentioned in yesterday’s letter, the VIX sustaining >24/25 level is not near-term bullish in our view for U.S. equities.  We’ve come a long way off the March/April lows and think we’re entering a period of “high” risk for U.S. equities between now and Mid Aug. 

OPINION: The Fed wants to “do more”, but likely need to save their bullets for the next 5-10% drawdown in equities. It’d look pretty foolish on their part to throw more liquidity at the market following a 40% rally from the lows – but then again you can’t put anything past them. Not to mention earnings risk and Covid-19.  New cases continue to accelerate, President Trump is wearing a mask, and States are now contemplating shutdowns i.e. California. I think ahead of the election, the window for a correction is now. OR do we continue to melt higher into Sept/October, which historically has never been kind to U.S. equities. Bottom line, according to the model, we’re bullish of Tech/Nasdaq on corrections to the low end of the range, but continue to hunt for shorts in the Russell 2000.

The Fed Needs to do MORE!

Goldman Sachs Survey: *84% of Small Business’ will exhaust funds by Aug/16% of Small Business’ are confident in making payroll

Global Equities– China corrects overnight -0.8% following an epic run over the past month. China’s bullish trend continues to feed into our Long Emerging Markets and Commodities theme by way of WEAK U.S. DOLLAR!  Europe also “red” across the board. 

Commodities also corrected yesterday, with gold, silver, copper backing off of their recent highs and soybeans, corn extending there losses from Friday’s wipeout. We see opportunities in the Ag space at present levels and took advantage of the giveback yesterday.  OPEC kept demand forecasts relatively unchanged for 2020 – they see -8.95M BBL drop in demand; Oil stocks are 210M bbls above the 5yr avg…BUT they see Oil demand returning in 2021 to +7M BBLs per day.  Oil down -2.00% this morning. 

Currencies- holding core shorts in the dollar. Will welcome rallies to 97.50 for an opportunity to “get bigger” on the short side. 

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John Caruso

Senior Market Strategist
Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.
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