Below is a transcript from Monday's Morning Market Hit video above (charts are at the bottom).
Welcome to Shortview Trading. This is your morning market hit for Monday, 15th of July. It's around 9:00 a.m. London time. What matters today and this week for markets, and in particular, if you're a trader of US equity futures with a one to two-week time horizon, what should you be thinking about and focusing on? Which short-term models will give you the best steer on near-term market direction? That's the purpose of this clip.
Price action last week was fascinating. It was classic "buy the rumour, sell the fact" price action in markets. Equity indices rallied into the CPI report in anticipation of a good number, a weak number, then they sold off sharply after that. As you can see on this chart, there were bearish key day reversals in key tech-heavy indices like the Philly Sox, as you can see here, but also in the S&P 500. In other words, those indices opened higher, made a new high on the CPI print, and then closed below Wednesday's low. Often, bearish key day reversals signal a near-term change in trend from bullish to bearish.
It was a good CPI number. You can see that on this chart: the monthly core inflation reading was very low. Excluding shelter, the reading was once again a modestly deflationary one. So, not surprisingly, the front end of the rates curve has been repricing rapidly, with two cuts now priced fully for this year and nearly 120 bips of cuts priced for 2025. Linked to that, US Treasury yields have been working their way lower. On the 10-year, we're down about 50 bips from the April highs. As you can see, 406 to 408 is the next key support level on yield.
What's interesting is that the move lower in rates and yields this past week has been accompanied by some rotation in markets. Indices like the Russell 2000, which are midcap stocks, have suddenly come alive in the past two trading days post that CPI number. With that, the index is breaking above its trading range of the past months and making a new 52-week high both on Friday and then again this morning. As you can see on this chart, the Russell has been dramatically outperforming the S&P 500 in the past couple of days.
So, the key question is: has this market started to rotate? Is tech going to be giving up leadership to other parts of this equity market? How should we be trading it with a one to two-week time horizon? We answer all those questions in our daily publication. In it, we make a one to two-week trading recommendation, long or short, on US equity futures. It's available on the website to subscribers. We also offer a free trial. If you're interested, click on the link below, enter your name and email address, and we'll put you on a free trial for three weeks.
How do we make these calls? What gives us an edge as we make calls on market direction in the very near term? Well, it's indicators like this one you see on your screen now, which is a technical model for the S&P 500 designed to pick key turning points. It's been timely in recent months, generating a buy signal, as you can see, in late May. Overnight, this model moved back onto sell. So, should one be short US equities here or perhaps buying small and midcap stocks? We answer all of that in our daily publication.
What are we watching today and this week in terms of macro data and events? Powell is giving an interview today; that'll be watched closely. Thursday is the ECB policy decision and press conference. UK inflation and jobs numbers come out on Wednesday and Thursday; those will be watched closely. The Q2 earnings season gets underway in earnest this week. We've got banks reporting today and tomorrow, with lots of other major reports coming out later in the week, including Netflix, Abbott Labs, American Express on Friday, and a number of others as well.
That was your morning market hit. Thanks for watching. Have a great week. Trade well.
FIG 1: Philly SOX cash index candlestick, shown with 50 day moving average
FIG 2: US Core CPI and Core CPI ex shelter (M-o-M %)
FIG 3: US interest rate expectations (July 2024 vs Dec ’24, bps) vs. USD index (DXY)
FIG 4: US interest rate expectations (2025, bps)
FIG 5: US 10 year Treasury yield (%), shown with 50, 90, & 200 day moving averages
FIG 6: Russell 2000 futures candlestick shown with 50 & 200 day moving averages
FIG 7: Russell 2000 Index relative to S&P 500
FIG 8: Average short term 14d RSIs of US industry groups (i.e. all 24) vs. S&P500