RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Friday we signaled buy on the S&P 500 – and if we get the low end of the range in the Nasdaq, we’ll likely buy that too (it doesn’t look like today will be that day though). I’m checking off a lot of boxes on this recent sell off in equities. From bullish cycle, to bullish trend, to low end of the range, to immediate OS reading (VIX immediate OB), and a big fat IVOL premium that expanded again this morning. I can’t argue with the math here. Could this be the start of a larger correction?  It sure could, we’ve highlighted Sept/Oct as turbulent months for equities, and I’m fully aware the bearish narratives – but I remain bullish and devoted to our signaling criteria until proven otherwise. There’s a lot of “catcalls” out there for 10%-15% correction in markets, because I’ve got a feeling many NEED it in order to get back in. I see a lot of underperformance happening this year when I look around, even some of our own CTAs that operate at our trade desk. 

Something else I wanted to get off my chest this morning has to do with the actions revealed this past week by 2 members at the Federal Reserve this past week. Richard Kaplan of the Dallas Fed, and David Rosenberg of the Boston Fed have been actively buying SP500 Futures contracts – IN SIZE – there positions valued at >$1M at a clip, amongst other block sized holdings since the start of the pandemic. These 2 UNELECTED “gems” not only get to set monetary policy, but also have access to non-public/market-moving information nobody outside of the Federal Reserve circle could ever dream of. This is akin to rigging a Las Vegas Casino, which would not only get you BANNED, but likely in handcuffs. This is perhaps the pinnacle, pull back the curtain on the Wizard of OZ, moment of corruption inside the walls of the Federal Reserve and their unelected officials. The Fed has two main responsibilities, employment and inflation/price stability – not jacking asset prices sky high and telling the American public it’s “transitory” – and then to boot, these two clowns are betting on it! I don’t think you’ll expect much to come of this either, and very little media attention (although Barron’s did have a write up about it this weekend to their credit). Now, since the “outing” of Kaplan and Rosengren, they both agreed that it was bad optics and will look to unwind all of their positions by the end of September. (Kaplan holds more than 27 positions all of which are > $1M per as reported). Conveniently enough, their exit is just as the Fed is on the brink of a taper announcement in coming FOMC meetings. It is what it is I suppose, and also likely to be swept under the rug with very little media attention. As the late comedian George Carlin once said, “It’s a big club, and you aren’t in it!”  And the rest of us will just keep grinding it out.

IVOLs are at a big PREMIUM this morning – which means Wall Street is cautious – which is also a classic fade signal:

SPY: 81% vs 34% w/w

QQQ: 81% vs 44% w/w

RUT: 38% vs 6% w/w

Commodities: Big moves higher in copper, and crude oil on Friday, while stocks simultaneously tanked, only adding to the non-linear nature of this market. There’s a rumor on Friday that OPEC is set to downgrade demand forecasts come Monday, but lo and behold they UPGRADED demand of pre-pandemic levels. We’re also looking for a potential massive drawdowns in inventories from the hurricane in the Gulf, which was likely priced into the market on Friday. In the meantime, SPRs have been tapped globally, and I’d expect crude oil prices to come in from here, but we remain bullish from the right prices. 

*Stocks immediate OS all the way around, NQ can still come in from here with the range low at 15361.
*Russell 2000 back to bearish (for a day), we’ll see if this holds – we want to look at being long small caps into yearend.
*10yr yield waffling bw bullish/neutral trend.  We have a bullish yields/bearish bias as of now into yearend.
*Gold/Silver remain immediate OS
*Dollar remains BEARISH trend
*Copper immediate OB here, but has recaptured its BULLISH trend

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