This does NOT Happen often...

Summary

The video script discusses the recent five consecutive down days in the S&P 500, a rare occurrence that last happened in October of the previous year. The presenter shares historical data on similar occurrences and their subsequent market movements, highlighting a potential for a bounce after significant drops. The current market sentiment, as measured by Morgan Stanley's Global Risk Demand Index, is shifting from extreme greed to fear, which typically precedes a price correction. The discussion also covers the impact of commodity trading advisers (CTAs) and their momentum selling algorithms, which could exacerbate downward trends if key levels are breached. The presenter cautions about the negative gamma environment, where selling can intensify, and notes the drying up of liquidity, which can lead to exaggerated market moves. The script concludes with a technical analysis of various indices, including the NASDAQ and SPX, and the importance of monitoring intermarket assets like the dollar, gold, and the 10-year yield. The presenter advises a cautious approach, suggesting waiting for strength in the S&P 500 and a return above the 5-day moving average before becoming more bullish.

Takeaways

• 📉 The S&P 500 has experienced five consecutive down days, a rare occurrence last seen in October of the previous year.
• 📈 Despite the downturn, historical data shows small bounces have sometimes followed such streaks, with an average drop of 3.6% before a potential rebound.
• 📊 Technical analysis indicates that the market is oversold, as indicated by various metrics, which could suggest a forthcoming reversal.
• 🔻 Sentiment has shifted from extreme greed to a more fearful state, as measured by Morgan Stanley's Global Risk Demand Index.
• 🤖 Algorithmic selling by CTAs (Commodity Trading Advisers) has contributed to the downturn, which could lead to further downward pressure if key levels are breached.
• 📊 The market is in a negative gamma environment, which can result in exaggerated price movements in both directions.
• 💧 Liquidity is decreasing, which, combined with negative gamma, can lead to more significant and rapid price swings.
• 📅 The average daily move for the SPX (S&P 500 Index) in April has seen down days exceed up days for the first time since October.
• 📌 Only a few assets such as copper, the 10-year yield, gold, silver, consumer staples, and the dollar have been in positive territory recently, which is typically negative for other assets when the dollar and yields rise.
• 📝 Upcoming earnings reports from Netflix, American Express, and Procter & Gamble may influence market direction, with expected move ranges provided for each.
• ⚠️ The speaker advises caution, recommending a wait-and-see approach until the S&P 500 shows strength and moves above the 5-day moving average.

Q & A

How many consecutive down days in the S&P 500 have occurred in the last five years?

In the last five years, there have been 12 instances of at least five or more consecutive down days in the S&P 500.

What is the significance of the S&P 500 experiencing five consecutive down days?

The occurrence of five consecutive down days in the S&P 500 is not frequent, and it can signal potential market shifts or trends that investors should be aware of.

What is the current sentiment in the market according to the Morgan Stanley's Global Risk Demand Index?

The sentiment has shifted from extreme greed to a more fearful state, indicating a potential downturn in the market.

What does a negative gamma environment mean for the market?

A negative gamma environment can lead to exaggerated moves in the market, with big selling into selling and buying into buying, which can result in significant volatility.

How does liquidity typically behave in a negative gamma environment?

In a negative gamma environment, liquidity tends to dry up, which can exacerbate the exaggerated market moves.

What is the current reading for the percentage of stocks in the S&P 500 above their 20-day moving average?

The current reading is at 10%, indicating that only 10% of the stocks in the S&P 500 are above their 20-day moving average.

What is the potential implication of the S&P 500 being in an overextended state?

An overextended state can suggest that the market may be due for a correction or a bounce, as it has moved beyond typical trading ranges.

What is a technical analysis indicator that could suggest a potential change in market direction?

Tight price action within wedge formations and the presence of positive divergences can be potential indicators of an upcoming change in market direction.

What are CTA triggers and how can they impact the market?

CTA triggers are signals generated by commodity trading advisers based on momentum and algorithmic trading. When these triggers are activated, they can lead to significant selling or buying, potentially causing explosive market moves.

What is the expected move for Netflix after their earnings report?

The expected move for Netflix after their earnings report is within the range of the lower expected move, with trading still occurring within those expected moves.

What are the key assets to watch from an intermarket perspective?

Key assets to watch from an intermarket perspective include copper, the 10-year yield, gold, silver, consumer staples, the dollar, and the performance of major indices like the S&P 500 and NASDAQ.

What is the current state of the S&P 500 and what are the trader's cautions?

The S&P 500 is currently down for five consecutive days and approaching important gamma levels. Traders are advised to be cautious, as there could be more selling if the market continues to decline.