On the Scoreboard

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.