Massive Reversal: Risk-On Or Recession?
The market rallied over 10% in the last 3 weeks, blowing shorts out of the water and even catching would be bulls out of sync.
Stocks like NVDA and META have rallied an insane 44% and 20% respectively during that same period.
NVDA rallied 44% from August 5 -23
As we’ve been discussing over the past several weeks, we’ve seen a mix of economic data, some of which is pointing to a slowing economy including rising unemployment and weakening inventory and manufacturing data.
But the Fed has made it abundantly clear that a rate cutting cycle is beginning and that’s exactly what the market needs to hear right now for buyers to step back in.
According to the CME FedWatch tool, there is approximately a 75% probability for 3 rate cuts between now and year end, with several more rate cuts expected in the first half of 2025.
CME FedWatch tool - Probability Table, cmegroup.com
Our thesis is these cuts are a net positive for the market in the short-term, but eventually the effects of the un-inversion of the yield curve, rising unemployment, and further economic softening will likely overwhelm equity markets.
For now however, we will continue to trade what is in front of us.
And from a tactical standpoint, the GEX data points to positive market positioning across the major indices and index ETFs.
Below is a post we made in our Community Discord on 8/9, highlighting the levels we were watching for the upcoming trading sessions that could signal an import flip positive in the overall GEX structure.
At the time, zero GEX corresponded with the 540-542 zone on the SPY.
The market eventually flipped positive and has since rallied an additional 5%, with further upside seeming likely in the coming weeks.
What We’re Watching This Week
NVDA
In last Sunday’s newsletter we noted that the 130-150 strikes were the most likely next targets for NVDA, and this past week saw several tags of the bottom end of that zone. NVDA is now consolidating at the 130 level and ideally we’d like to see some further consolidation or pullback from these levels before entering into a bullish position aimed at catching the next potential leg higher.
Positive GEX remains between 130 -150 and so it appears market participants are positioning for further upside in the coming weeks/months.
PLTR
PLTR is another name we’re watching and could be an interesting play on a pullback near the 30 level.
Price has been consolidating between 31-33 for the past week and we see positive GEX all the way up to the 40 strike. The growing GEX levels at higher strikes also signal that our Dealer Cluster is likely to shift higher soon as well.
Btw if you’re not a member and you’re interested in our GEX tools and analytics, check out our site here.
META
As we mentioned earlier, META has rallied over 20% over the past few weeks and market participants continue to position for higher prices into the 550 and even 600 strike.
Although META has been a bit more volatile this year compared to 2023, it’s still one of the market leaders when it comes to bullish sentiment and investment flows.
We see continued options volume coming in the 530-550 strikes and so we think META will likely be a market leader should the rally take another leg higher.
Bitcoin
Bitcoin has a mini capitulation event selling off 30% between 7/30 and 8/5. However since then, it’s rallied back over 25% signaling that the risk-on trade is probably still alive and well.
Analyzing the GEX data shows bullish positioning between 65k - 80k.
We’ll continue to discuss these ideas and others in the coming week - We invite you to check out our community discord for our latest market conversations.
If you’re interested in learning more about our strategy approach, we address all of these topics in our Geek University course which is included in all memberships.
If you’re interested in accessing our tools and analytics, be sure to check out our website!
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