Overnight action was relatively muted with a rarely seen (of late) two-sided overnight trade. Looking back to Easter Weekend, major equity indices are essentially unchanged. Whether it’s the S&P, Dax, Nikkei, or Emerging Markets, the fact is we’ve posted smaller weekly ranges or ‘inside’ prices from the prior week in each. The net change over the three-week period--if we close anywhere near her--is minimal and marks the smallest three-week closing ranges of the year. After such extreme volatility and a retracement to the midpoint of the year, that’s relatively normal. But here’s the fun fact for a Friday. The absolute value of the net price changes in the overnight session is a whopping 357 S&P points. Yesterday ended the streak of gaps that remain on one side of unchanged but for perspective the above basically states the S&P 500 gap openings combine for an absolute value of 12% the last three weeks yet current prices are sub 1% close-to-close.
Another round of stimulus in the US and optimism over eventual action in the EU and the BOJ help to outweigh negative data points and earnings. The reality is Risk Parity strategies are back to all time highs. A blend of Gold, Ten Years, and SP suffered an historic decline in March but in retrospect the result of CB and Govt stimulus invariably drives the ‘all weather’ strategy higher and underlying volatility lower.
There's not much on the mover board today but Three-Month Libor fixed lower by the most since March 9 and that's helping Euro, Italy, and a number of risk proxies on a relative basis.
Strategy and Levels
Over the next few weeks we’ll see staggered openings across the country and a deluge of big tech earnings. Invariably, those outcomes will ensure a bit more direction in the weeks to come.
I favor Gold and Silver longs on pullbacks, FX remains a wasteland, though USDJPY still ‘looks’ lower ultimately while the Fixed Income trading is isolated to Ten Years and longer duration.
Global equities are supported by ‘whatever it takes’ stimulus where ‘technically’ I’d prefer a retest of the 2600 in S&P but am open minded over the next few weeks. From consolidation comes expansion and although overnight price action is anything but consolidating, major equity indices have certainly done so close-to-close the past three weeks.
Have a safe and healthy weekend.