Hedge_Of_The_World

Jobless Claims Fall, PPI Crushes Expectations

Short
AMEX:SPY   SPDR S&P 500 ETF TRUST
US Futures traded mostly sideways in the overnight session, with the S&P briefly testing a low of 4,029.38, before recapturing the 50DMA. We're currently sitting just above the 50DMa around 4,072.38 as of 9AM.

We saw jobless claims come in at 473k vs the 510k expected, while continuing claims came in at 3.655MM. Don't be fooled by these numbers though, we're still seeing over 16MM Americans on some form of income benefits, and a significant portion of labour costs are being subsidized by the government. How long this can last with inflation soaring, is anyone's guess.

PPI came in hot at 0.6% in April vs the 0.3% expected, while Core PPI rose 0.7% vs the 0.4% expected. YoY, PPI rose a whopping 6.2%, much higher than the 5.8% expected, and the highest YoY rise ever.

The US10Y yield cooled slightly after yesterday's high of 1.705%, and is sitting just below cup and handle resistance at 1.686%. We're up around 6% on the week, and poised for a massive breakout if we push beyond 1.77%, the previous high from March.

The Vix blew up yesterday, rallying a whopping 30% before cooling to a 25 handle as of 9AM. We appear to be in the midst of a vicious reversal, as is usually the case when Vix spikes. However, the majors are still incredibly overvalued, historically so, and would need to see a 30% correction to match the levels seen in the dot com bubble. Needless to say, I'm holding my Vix longs, for big short 2.0.

The Dollar ( DXY ) had a fantastic day yesterday as risk was fled for safe havens; even the flaming dollar. But saw some weakness after testing a high of 90.907 in the overnight session. We're likely going to see a test of the lower band of the wedge , around 91, before we see a solid rejection back to 90. Having said that, the dollar is likely going to see a bid at some point, when the Fed mentions the word no one on Main Street wants to hear, which is taper. Inflation will force the Fed's hand, and they won't have a choice but to reduce bond purchases, and raise rates, leading to a cascade of selling in debt support assets such as real estate, and growth.

Finally, the Put/Call rose almost 20% yesterday, rising to the highest level since October, 2020 at 0.83. We're seeing a blatant shift in positioning in the equity options market, so hold on to your hats as the PPI data confirms that inflation is rampant, and potentially at the stage where it can do significant damage to Main Street.

* I am/ we are currently holding positions in UVXY , HUV .
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* The information and analysis shared in this post is not financial advice. Always conduct your own analysis and research.

Comments

nice detail breakdown, I always enjoy your views
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@jojofang0901, Thanks buddy! Same to you, my friend.
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UVXY announces 10:1 reverse split May 25th . hmm ...
+1 Reply
@Peterson, Interesting... Maybe they think we'll be below $5 and not at $30. Lol. SPY has been glued to the upper bollinger band on the monthly, for 10 months straight. It's a mathematical certainty that we'll see a reversion to the mean (currently sitting at 338.55), and UVXY will explode. The issue, as alwyas is the timing. I can't see any clear catalysts right now that could lead to panic, but I do see a notable repositioning in the equity options market, and HF's starting to short growth. With rates likely to rise off the back of soaring inflation, that could be one possible catalyst. What are your thoughts?
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Peterson Hedge_Of_The_World
@Hedge_Of_The_World, Well there is a Plethora of growing geopolitical risk , most recently Israel and Hamas , the explosion of Virus Variants within India that are not being tracked and contained , The pipeline Hack etc... No Black Swans , but something coming out of left field so to speak , not necessarily Financial related .
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@Peterson, Very possible. I agree, I think geopolitical risk has risen sharply of late. Biden is no where to be seen with all of these gaza strikes.
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Peterson Hedge_Of_The_World
@Hedge_Of_The_World, Maybe next weeks 20yr bond auction . todays 30yr auction went smoothly .
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@Peterson, interesting.... What about an announcement on longer duration. 50Y Treasury? I really wonder when they'll tap duration as the next piece of the ponzi.
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Peterson Hedge_Of_The_World
@Hedge_Of_The_World, I think that would signal to the Market that they have crossed the Event Horizon , nonetheless full steam ahead . Than announce the minting of the 100 Trillion dollar coin .
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@Peterson, Haha absolutely. At that point everyone would just stop working. Lol.
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