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Market Outlook |Week of 7/4 – 7/8

Previous Week’s Update:  https://25koptionschallenge.com/market-outlook-week-of-6-27-7-1-too-many-fake-outs-is-this-the-one/

The worst 6 -months in over 50 years are over

We had the worst start to the year since 1968 and all of us were there to experience it. Most of the big boys (I am talking about the trillion dollar companies) are now down more than 20% for the year. We had so many fake rallies which never materialized that I have lost count by now. QQQ is again trying to put in a rally (despite a negative last week) and VIX is again dropping. Many analysts are predicting that the 3rd quarter might bring a rally. 

Whether it is an analyst or Michael Burry (The Big Short), nobody has a crystal ball, so we will have to keep trading by watching VIX and macro-economic events. 

QQQ 6M Daily Chart – We didn’t get the DMI cross-over 🙁

Last week I had pointed out that we are almost about to see a DMI cross-over but it never materialized and we had an overall red week.

  • However, all is not lost. Last week, although negative was lacking momentum and we could simply head back up from here. 
  • We do have FOMC minutes this week but more important than that is the CPI print coming up on 13th and the next FOMC meeting on 27th. These two events hold enough power that any technical analysis can be rendered pointless this month. 
  • If the CPI print shows inflation has peaked, it can set the stage for a massive rally. I will not be surprised to see Qs testing $340s in as little as 2-3 weeks.
  • However, if we get another bad CPI print, look out below for Qs to test $234 levels in the blink of an eye. 

Market Moving Events – FOMC Minutes this week | CPI and Earnings Season next week

As mentioned above, FOMC minutes is just the details of what happened in the June meeting. We have a binary event next week – The CPI print is the biggest data point this month which can change the market direction. Any +ve news and hint of peaking inflation on the CPI numbers can start a massive rally. On the other hand, negative news takes us to new lows for the year.

As if that is not enough, we have earnings season starting again and the whole world is watching. Last earnings season was very good but companies got punished anyway. Analysts will be looking for clues for any slow-down in earnings this season and if we see enough of that, you and I know what comes next. 

Earnings next week (HELE, WDFC)

Earnings is over and earnings start again in the following week. If you thought you have had enough with binary events and volatility, I am sorry to say that this month is loaded with those. 

Macro Analysis (VIX)

VIX has failed every time it tried to drop below 24 and I am not sure if we will see markets stabilizing anytime soon. I feel like there needs to be a major positive macro event for markets to get out of this bear market. War situation getting resolved in Ukraine, or a CPI print indicating inflation has peaked. Outside of that it is hard to imagine a scenario where these markets will turn around. We might get a occasional relief rally here and there but the tides will only turn on a major event.

TNX (10 year treasury yields)

While everybody was distracted by the crypto crash, TNX has quietly dropped hitting a 4 week low. This would have been a significant development if we were not faced with the CPI print, earnings season and another FOMC meeting this week. However, it is still something to keep on your radar. If you want to be lazy, just stay focused on VIX. If you see VIX below 22 this month, that will automatically tell you that the CPI print came out good and earnings season is going well too.  

Key Takeaways

  • VIX > 25 means keep trading volume low or balance out your expirations between Bull/Bear spreads.
  • I don’t expect much from FOMC minutes, so the markets could go up this week.
  • We have that pesky CPI print coming up next week which is a big enough data point to decide the direction for these markets.
  • Stay focused on VIX and as long as it is above 24, keep doing put and call spreads to keep your portfolio balanced.

CHEAT-SHEET (No changes here)

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