/ February 20
Daily Briefing
*Yesterday’s session started out in lackluster fashion, with major indices floating around prior closing levels; the S&P 500 did manage to close at a record high though, underscoring some bullish money flows;
*The limited action in the early going was rooted in profit-taking activity, but stocks showed nice resilience to selling interest, which became its own upside catalyst by the close; on a technical note, our server migration has completed successfully and any delays in strategy and dashboard refresh will become a rarity from this point onward; the Market Fundamentals instrument has also been refreshed correctly as of last Friday’s close;
*SPY is continuing to slowly consolidate and subtly break out of its recent trading range; while both support and resistance levels are grinding up, the price action is undeniably bullish; only medium term momentum remains negative, but that will surely improve in the next couple of sessions; there’s nothing here to really signal unpleasant surprises ahead, save for the fact that SPY is technically overbought;
*The MACD signal has started to diverge to the positive side again, reflecting optimism which recently prevailed in the options market;
*According to the latest data, bullish flows for the whole market both in the short and medium term (options contracts bullish percentage) is highest in Communications (XLC), SPY and Financials (XLF); institutional investors and market makers are less enthusiastic about Healthcare (XLV) and Real Estate (XLRE);
*Strength in the mega cap and semiconductor spaces played an integral role in index gains; the PHLX Semiconductor Index (SOXX) jumped +1.2%, and Microsoft (MSFT, +1.3%), Apple (AAPL, +0.2%), Alphabet (GOOG, +0.7%), and Tesla (TSLA, +1.8%) registered gains;
*Meta (META, -1.76%) stood out as the loser of the day, with profit taking hitting hard after an excellent near term run; among major S&P 500 companies, AAPL, NVDA and META have some of the highest skews (indicating downside potential from options traders); META has the highest 3-month volatility premium (implied vol > realized vol at the 3 month interval); translation: not the time to buy the dip on META just yet;
*Market participants were digesting more talk about tariffs, but took it in stride due to a view that tariffs are more of a bargaining chip than a permanent feature; President Trump said the auto tariff rate will be in the neighborhood of 25% starting April 2, and that he is also considering tariffs for pharmaceuticals and semiconductors;
*The market also received the Minutes from the January 28-29 FOMC meeting, which didn't contain any surprises.
*The 10-yr yield settled one basis point lower at 4.54% and the 2-yr yield settled three basis points lower at 4.27%;
*TLT consolidates recent gains below the M-Trend level (which our process designates as “Stop-Loss”), but Enterprise still maintains an allocation to bonds; we’re also willing to give treasuries the benefit of doubt here and let the position run further;