#12-05 | Unsustainable wage growth, S&P500 $SPX $SPY $ES_F $NQ $QQQ $DXY $VIX $TLT Levels
Will bears take control this week or net longs FOMO in 0DTE options
The strong wage growth may not be sustainable in the long term. A total of 263,000 jobs were added, compared to an estimate of approximately 200k. As inflation rises, companies may not be able to continue offering such high wage increases without passing on the cost to consumers. The increase in the average hourly wage at 0.6% compared to the previous number of 0.5%. This could lead to a slowdown in consumer spending, which is a major driver of economic growth.
The unemployment rate remaining steady at 3.7% may not be an accurate reflection of the labor market. As mentioned earlier, many people have retired early or stopped working altogether due to the generous fiscal stimulus provided by the government. When these individuals return to the labor market, the unemployment rate is likely to rise.
While the jobs report may appear strong on the surface, a closer examination reveals underlying weaknesses in the labor market. It is important to consider these factors when analyzing the health of the economy.
S&P500 E-Mini Futures
Last week we primarily discussed that inventory needs to build up in these 3 yellow zones. See screenshot from #12-02 below.
The price action of Friday during RTH tested the top of the third short position highlighted by the second yellow arrow in the screenshot above. This implies that the shorts are defending the top of the position where the dollar cost average of the net shorts is at. This third short position is where bears need to break what has now become the previous day's low at 4027.50. If shorts can take control of 4027.50, we will proceed to 3998.50 (the bottom of the third short position and then we can test the net long position at 3950.
This provides traders with the opportunity to identify potential areas of support and resistance, as well as to assess the potential strength or weakness of a particular price movement by analyzing the distribution of trades over different time periods and price ranges.
In the long run, it is important to note that ES was able to close above its 200-day moving average during RTH for the first time since March 2022 at 4048.50. However, when analyzed from the price action of ETH, the price shows weakness. According to this analysis, the divergence between RTH and ETH strength during the overnight session could be due to money managers balancing and off-loading size throughout the night, and possibly buying up the inventory they sold.
We are looking for inventory to be rebalanced at the 200MA during ETH at 4038.50. If net longs can defend the 200MA we can rotate higher to break this long term downtrend (green solid line, in chart above).
Levels:
LIS: 4058.50
It is necessary for net shorts to take out 4063.75 and work on filling inventory at the lower levels of 4057, 4054.50, and 4047.
The net longs must defend 4075.50 as well as take out the upper stops at 4078, 4085.50, and 4110
Institutional Positioning
Finding these stocks/companies will give us insight into the theme of 2023. We can measure this by the performance and volume of their trades. Growth in stock prices is a result of positioning by large traders. These stocks are below, and we believe they fit our insights into the activity of investment strategies based on volume*price analysis.
BA traded 1.93 billion in notional value during Friday's session. Boeing failed to take out previous lows at 113.02 during the last market sell-off, which resulted in aggressive short covering. Over 183.78 could open the door to 186.61, 190.40, 206.15 in Q1.
In Friday's session, there was a total of 4.93 billion dollars in notional traded on Meta. In 2022, money managers sold Meta to the ground, resulting in a significant short covering. This short covering is met with net longs either dollar cost averaging back into Meta and potential shorts that get caught off side will need to hedge using OTM calls. If we run up to test 155.75 (the 200MA area), wholesale will be required to clean up this potential mess. META may be subject to a short squeeze once the gap at 128.53 is filled.
China Zero-Covid policy is loosening over the course of the next weeks to months. Containment of COVID in China, which will lead to the economy reopening and on it’s way to pre-covid levels. We are seeing increasing positioning Pinduoduo. Near term target we have is 95.56, into next year we could see PDD trade up to 117.90. 71.27 needs to hold on aggressive sell offs.
As the Ukrainian-Russian conflict has lasted into Q2 2023, keep a close eye on LMT positioning. It is important that the U.S. government takes steps to upgrade the weapon technology before any escalation takes place, so be sure to watch LMT positioning closely. If there is a potential conflict, it is possible that the U.S. government will consider upgrading its weapon technology and may seek assistance from companies such as LMT. Near term target on LMT is 508.91, pullback into 479.99 could setup a bigger move into 2023 to 545.70, 586.31
