
By John Netto
General
The last Friday of Q2 marks the annual Russell rebalance. The largest liquidity event of the year for equities is 'gamed' by professionals for at least a week prior and much of the index needs are 'pared off' during normal trading (but expect rotation to remain high). Earlier this week I noted there was less edge in the equity market at the current time and the reality is FX moves are highly correlated now to equity sentiment (stocks down / dollar up). It's hard to make that statement with an average daily range of 250 bps. But the reality is that since the 5% drop on June 11, the Emini closing range over those 10 days is 2971 to 3018--within the 6/11 price range. The average total day range for the ten days is 83 points.
So we're moving 83 points a day but stuck within an inside week and prices that are currently the midpoint. That's a good market for trading - less so for positions. Toss in the fact yesterday's Treasury ranges were among the smallest of the past two years and a currency market that is correlated to equities.
Next week the risk takers I talk to are looking for more opportunity as defined in risk/reward positions. Why? The argument is the market will be through the post expiration and rebalancing flows as well as getting a glimpse at June data. From there earnings will dominate the landscape and hopefully the handicapping skills put forth in this morning note will add value.
A lot of this week's news flow is based on Covid counts. The cases in four states are alarming but a realistic analysis of the data would show death rates are contained, reopenings are only being paused--not reversed, and the cold reality is the age demographics most impacted are unlikely to impact economic growth.
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