Video summary
Patrick Munnelly opens his weekly market update by analyzing the S&P 500 E-mini futures, noting that while the index is approaching all-time highs with intact momentum, the current setup has become increasingly sensitive to upcoming economic events and data releases. The previous week saw gains driven primarily by technology and semiconductor stocks despite lighter summer volume, a dynamic Patrick describes as uneven participation where nearly half of the S&P 500 components have gained over ten percent year-to-date while others lag significantly behind. He highlights that although volatility currently favors upside moves in equities due to compressed levels, there is an underlying risk; any unexpected news regarding inflation, earnings, or geopolitics could trigger a rapid market reset similar to the minor drop seen on Friday before recovery began. Furthermore, he points out mixed positioning signals where institutional buying has returned via dark pools but dealer hedging remains heavy near current prices, creating mechanical restraints that may limit clean upward breaks until after options expiration later in the week.
The macroeconomic calendar for the upcoming days is identified as the primary driver of market direction, with specific attention required on Tuesday's Consumer Price Index (CPI) inflation report and major bank earnings from institutions like JPMorgan and Goldman Sachs. Patrick explains that while markets are pricing a high probability of rate cuts in September, every data point now carries significant weight to validate or challenge the soft landing narrative; specifically, if core inflation remains firm despite cooling headline numbers due to lower gasoline prices, bonds should react positively allowing equities to hold their ground, whereas a hot core print could pressure growth stocks. The week also features Fed Chair Walsh's semi-annual testimony and various earnings reports from companies such as ASML, Morgan Stanley, and Netflix throughout Wednesday and Thursday, meaning traders must remain cautious about chasing extended moves early in the week before looking for clearer directional signals once the compression event clears post-Friday expiration.
Shifting to technical analysis, Patrick outlines a constructive bullish setup on higher timeframes where the index is trading well above its monthly VWAP but continues to struggle against resistance near 7640 and the yearly R1 level at 7647. His primary upside objective involves clearing this value area high to target levels between 7710 and 7750, potentially followed by a retest of prior highs before extending further toward an equality target around 7770 based on recent swing structures. On the downside, he identifies critical support zones at 7530 derived from implied volatility in options markets and a daily bull-bear zone near 7560 to 7550 that acts as a key indicator of short-term strength; losing these levels would signal structural weakness and open up targets toward previous lows around 7350. Additionally, he draws attention to the US 10-year Treasury yield as an early warning system, noting that breaking above current trend lines or approaching the 4.8 percent level could indicate meaningful rate hikes and potentially cause equities to respond unfavorably if yields close meaningfully higher than anticipated.
In conclusion, Patrick maintains a cautiously optimistic outlook for the week but emphasizes the need for risk management as summer trading volume compresses volatility ahead of potential snaps in late July or August that will allow markets to reset before September's midterms and October elections. He advises traders not to chase price action impulsively during this period of event sensitivity and compression, instead waiting for cleaner signals after Friday's options expiration clears the mechanical hedging pressures from market makers. The overarching strategy involves monitoring key levels like the 7640 resistance and watching yield movements closely while adhering to a disciplined plan that accounts for inflation data, earnings surprises, and geopolitical headlines which could force quick adjustments in price action throughout the remainder of the trading week.
Read the full video transcript
Welcome traders to another Tick Mill
trading update with me, Patrick
Munnelly. Want to update the S&P 500
view using the E-mini futures contract
and put together a trade plan for the
week ahead. So,
before we jump into the actual technical
picture, as always, want to take a look
at market narrative, sentiment,
positioning flows, and catalysts as we
head into this new trading week. Um, so
this week, market comes in
pretty close to all-time highs
with momentum still intact, but the
setup is becoming
slightly more event-sensitive, I would
suggest. Last week, the S&P was up 1.23%
making
second week in a row of gains driven by
late-week push in technology and
semiconductors.
That strength came despite lighter
summer volume, which we want to be
cognizant of, which tells us that the
bid is still intact, but it also means
conviction is slightly harder to get a
read on with that reduced volume and
participation
as summer trading really kicks in now
between now and uh and Labor Day in the
US. Sector performance showed uh
continued rotation.
Energy, technology, communications
services led the charge, while
industrials, healthcare, and materials
were lagging. Uh nearly half of the S&P
500 is now up at least 10% year-to-date,
roughly in line with the index itself.
So, participation is not broken, but
it's uneven. This remains a market
defined by dispersion, so big winners,
clear laggards, and a lot happening be
beneath the index level pricing that uh
that we're obviously mainly trading. Uh
volatility still favors upside in
equities. Index level wall remains under
pressure and dispersion continues to
support selling index wall. But that is
also the risk when volatility is this
compressed, any surprise on the tape
from inflation or earnings or
geopolitics can force a quick reset, not
dissimilar to a little 50 pip 50 point
drop we saw on Friday before immediate
recovery ensued. Positioning itself is
somewhat mixed. Participation dipped
from the prior week 66%
overall print to a 54%
stabilizing late Thursday and Friday.
Meanwhile, quiet institutional buying
has started to return
as gauged by dark pool activity which
rose from recent lows and appears to
have essentially bought into last week's
dip. Normally that is constructive, but
historically
when this signal rises while the index
is already at short-term highs, it's
edge is somewhat weaker as a read. So
the takeaway is not not to chase here,
but rather that meaningful demand still
exists below the surface.
That said, dealer positioning is also
important obviously. Market maker
hedging remains heavy near current
levels which helps explain why Friday's
late surge faded instead of breaking
cleanly higher. We're seeing a pinning
effect heading into options expiration
and that may continue into into Friday's
monthly expiration. This expiration
includes a major put roll off and once
it clears, some of that mechanical
restraint that we've seen on the index
should also ease. In simple terms,
expect compression early in the week,
but potentially more freedom post the
expiration on Friday. The macro calendar
is the real driver. Markets are pricing
roughly 31% chance of a July hike, but
an 84% chance of of a move in September.
So, every data point becomes more
significant. Monday's quiet with the
federal budget release later in the
afternoon and
small smashers
Fed speakers around it.
Tuesday is the real key event this week.
The major test with CPI inflation 8:30
a.m. Headline inflation is expected to
cool helped by lower gasoline prices
while core, which is what the market's
going to be focused on, is expected to
remain firm. If headline disinflation
shows up clearly and core behaves, bonds
should like it and equities can hold
their bid. But, a hot core print would
challenge the soft landing narrative and
pressure rate sensitive growth stocks.
Tuesday also brings major bank earnings.
We have JP Morgan, Goldman Sachs, Bank
of America, Wells Fargo, and City. And
importantly, we also hear from Fed Chair
Walsh, first semi-annual testimony
before the house. So, a lot of event
risk priced in around Tuesday. Wednesday
then brings PPI and Walsh's second
testimony. We get the Beige Book, crude
inventories, and earnings out of
Europe's most profitable company, which
is ASML.
We also get earnings from Morgan
Stanley, BlackRock, Johnson & Johnson,
and United Airlines. Thursday,
another key day with retail sales,
jobless claims, and earnings from TSMC,
important read on the chips there.
United Healthcare, GE, Abbott, and
Netflix after the close.
And then Friday brings that options
expiration, housing starts, industrial
production, Michigan sentiment, and
inflation expert expectations. So,
um the core takeaway from uh this side
of the book is that uh the trend remains
intact, but it's not a week to be
complacent. Inflation, earnings, Fed
commentary, and that options expiration
all key inputs this week. So, uh from
that side of things, I'm remaining
cautiously optimistic. Avoid chasing
extended moves early in the week, and
watch for cleaner directional signals uh
to develop uh after Friday's compression
event uh clears. So, let's move to the
technical picture, and uh and starting
on the monthly timeframe, remains
constructive trading well above the uh
the VWAP. Monthly VWAP comes in just
above 7,200. We're still struggling to
get that close above the yearly R1 at uh
at the 7647
level. That's the key uh close we're
looking for on the weekly timeframe.
Again, constructive um buy signals in
place as per the VWAP strategy.
So, we are looking to take out this
value area high, this uh year-to-date
value area high at that 7640.
In terms of the daily setup, and um the
weekly expected move is our first upside
objective once we can clear that 7640
area. So, we look for 7710 up to 7750 as
our primary objective uh once we can get
that confirmed break in place. And uh
from there, we may see some back and
filling and a retest of these prior
highs before looking for the next
extension. But, our primary
upside objective is going to be that
expected move to the upside, and the 127
extension of our last uh meaningful
corrective phase. To the downside, we
have support coming in um in terms of
implied volatility uh from the options
market down to 7530, key line in the
sand. So, let's bring that into the
trading setup as per the intraday charts
that I share on a daily basis. And
we have tested into the gamma flip zone.
So, 7580s held support there at the
beginning of the week. My daily bull
bear zone is actually just a bit lower
7560 7550.
Whilst we retain support there, I had
this also in place on Friday. This is a
key short-term indication of strength.
Whilst we retain trade above there and
remain constructive, then we're looking
for that break through resistance
that comes in now at Friday's close.
Obviously, we've had a bit of a gap down
with respect to Iran headlines over the
weekend, but we're recovering that now.
So, we look for a gap fill as the first
upside objective.
And then on to take a look at more
meaningful resistance 76 47650.
If we can get acceptance above there,
then our first upside objective today is
going to be daily projected range
resistance coming in at 7695.
We then look for any pullbacks to find
support back into the prior all-time
highs. We have a upside objective then
into that
and equality target versus this current
swing structure we have in play and
against the lows at 7350 gives us 7770
as the equality objective to keep in
mind. So, that's the that's the initial
bullish read on on the price action
setup at the moment.
If we
if we start to trade below the daily
bull bear zone, then the weekly bull
bear zone remains the key level that I'm
watching
for a structural shift in things. So, if
we uh if we take out 7460 7450, that's
uh that would be the first sign of um
some structural weakness in the market.
But, on a first test again, I'll be
watching for bullish reversal patterns
to engage on the long side with those
same upside objectives in play in the
same upside path. Obviously, probably uh
slightly altered price path will be in
play, but I'll update that in the uh in
the daily update. Any loss of the daily
bull bear zone sets up a test of the
downside objectives back into take a
look at 73
60 7350.
But, I'm taking it session by session
for now. We are constructive whilst
trading above the the daily bull bear
zone. And, I've given you the upside
targets and how I think we uh we can
achieve those. So, um one of the chart I
do want to uh do want to pull up this
week to keep in mind certainly as we're
going to have war shown deck and uh and
the inflation print. And, one uh one of
the charts really that's the the canary
in the coal mine here
uh for me at least in terms of the short
term is this US 10-year yield. Uh we've
taken out the trend line resistance
uh at the
455 level. Um on the monthly time frame,
that trend line I've got a little bit
higher here at 4.7.
But, any move through there would uh
would certainly be cause for concern. Uh
that would mean that we could be taking
a look again at 5% on the upside and
some technical targets on any close
through that 5% would then uh be in play
as well for uh for meaningfully higher
rates. And, if we did get that for
whatever reason, um
cautious on the long side in terms of
equities because uh I don't see the
equity market responding favorably to
any meaningful closes above that 4.7 4.8
and even 5% on the upside. So, that's
something just to keep an eye on. For
now, we're consolidating within this
this triangle which we've been in for uh
since 23. So, just keep an eye on that
as a as an early warning trigger for
potential more more meaningful
correction. Like I said, we're into the
summer trading months now.
We're seeing that ball compression play
out. What we often see and something
I've alerted my strategy group members
to is the idea that we can see a quick
snap in terms of volatility
in the July-August period to release
that volatility compression, allow the
markets to reset then heading into
September, October and into those
all-important midterms. More on that to
follow. But but for now, just keep in
mind that that 10-year level. We we
cross the 4.55
4.7 4.8 are the next key areas to watch.
And if you're looking for daily updates,
I provide daily updates for the S&P
using obviously the E-mini futures
contract with daily trade levels that
I'm tracking and targets. You can get a
hold of that through the Tickmill blog
to receive the daily updates. But that's
it for this week. As always traders,
plan the trade, trade the plan and most
importantly, manage your risk. Until
next time, thanks very much.