After yesterday’s selling, how do the E-mini S&P and E-mini NQ skew for opportunity in this data-heavy week?
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E-mini S&P (September) / E-mini NQ (September)
S&P, yesterday’s close: Settled 5541.75, down 119.25
NQ, yesterday’s close: Settled at 19,006.50, down 616.50
E-mini S&P and E-mini NQ futures slipped sharply to start the month. It was clear that Semis led the risk-off tone with the SMH -7.5% and the likes of NVDA -9%. The company chopped $280 billion in market cap, the largest move in history. It also became known after the bell the Department of Justice expanded a probe, subpoenaing the chipmaker and looking into allegations it creates an uncompetitive landscape. The Tech-heavy E-mini NQ shed 3.1% and finished at the lowest level since August 13th.
While the move is a cause for caution, it affirms our prudent approach in the recent two weeks. Although we typically lean bullish, I vocalized we felt uncomfortable with too clean of a rebound from the August 5th volatility event ahead of a seasonally softer time of year. On the CNBC Halftime Report, I spoke of trimming Mag 7 names and implementing protective puts on wealth portfolios.
With that said, we do not expect an all-out collapse. While the tape was weak before yesterday’s ISM Manufacturing read, the report certainly did not provide any favors with headline showing a larger contraction than expected at 47.2 vs 47.5, Employment contracting for the third month in a row, and Prices expanding at the highest pace in three months. Furthermore, Atlanta Fed GDPNow fell back to 2.0%.
Where does opportunity lie? The VIX back above 20 ekes out enough fear, but it would be ideal to see a bit more. Remember, while the August 5th volatility event came on the heels of earnings, the Japanese Yen unwind, and Buffett selling Apple stock, it also came after a big payrolls miss. At Jackson Hole, Fed Chair Powell maneuvered policy from inflation-dependent to labor-dependent. Given ISM Manufacturing, we believe the market’s drop was in part pricing in the fear of another payroll miss. This begins skewing the risk to the upside in response to Friday’s report.
Price action in both the E-mini S&P and E-mini NQ yesterday broke below critical areas of support in the final minutes, before essentially settling right at them. Weakness upon the reopen has left gap resistance early in today’s session in the E-mini S&P at 5541.75 and in the E-mini NQ at 19,003-19,007. While these levels are critical, we have additional resistance highlighted. To the downside, there is unfinished business correlating with how clean the August 5th volatility rebound was. The first wave of such comes in at levels in which we may find value in flipping our market narrative to constructive at….
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