Stabilization Into Bull Trap

for all our research and trades or for just my daily live streams you can access via YouTube memberships. All links are in the description. It is um

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always an eventful headline driven backdrop. But the reality is we have some momentum of bullish flows over

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fundamentals, something I wrote about last week. So that's kind of still in play right here. So we did have our

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bounce and I said into April 7th week of didn't know didn't know that Trump was

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going to come out and basically do another one of his tirades over the weekend and basically uh commit to bombing Iranian bridges in particular.

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In fact, they didn't wait until Tuesday at 8:00 p.m. which was in fact the slated risk. They just went ahead and did it already. So, they've already

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bombed USI Israel has already bombed Iran's largest bridge. They didn't wait for tonight at 8:00 p.m. All right. So,

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anyway, before uh the weekend, I talked about flows in particular. We had had a really big exodus out of the MAG seven

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names. They were sold in 12 of the past 13 sessions. This was uh written on the 31st. Anyway, industrials had been sold

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for five straight weeks and energy obviously had been the large outperformer this year. We had a rotation into growth and out of energy

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pretty much on Q. Oil was very elevated and flat. So that was not the reason for the season coming down. It was very much

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focused on this bounce and I'll show you my intermarket where we had lots of levels of support bounces but basically

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S&P 6500. So, kind of keep it at that level. And then this is where we closed firmly. We actually had a gap down, but

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that reversed and we closed obviously green right underneath 6600. I had kind of joked, but not really, that I'm

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looking for 666 in the ES. And then above that, we have to reassess, but 666 is right here for

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S&P. And I still think that that's in view. So, we've got again a reflexive bounce that's in play. We formed also

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last Thursday a bullish engulfing which is a bearish continuation pattern. So I am expecting as I mentioned weeks ago

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this week of April 7th. Remember that I said I can see stabilization into the week of April 7th and then midappril we

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go and have our correction. So we've had a very sharp bounce off of support. This is my mag seven ratio again. And then this is the next day and then we closed

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really firmly up here. So, we have a nice bullish harami for this week. Long story short, it is this reversion right

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here of a growth over value. This is my growth value ratio that saw a bounce.

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Unfortunately, I think we're still going to fill this level later. So, it's a bounce before the trounce if you will.

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And then I showed some charts in particular the cues. There we go. On a 2-hour we formed this left shoulder,

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head right shoulder. We got above 566. I said we need to hold 566 to head into this trend line on a 2hour. You can see

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it. We already reached it. We went $10 higher into 576. And basically, you know how this works. We get above 576 and we

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hold. We head up into about 5.85. Let's just say 586 for convenience. We could overshoot potentially a little higher,

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but big picture, I think we'll peter out toward the end of the week. So, we got lots of bounce levels. This is SPY. Same

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inverse head and shoulders up into this level. If it held 640 right here, kind of the shoulder area, then we've got a

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trend line, a descending trend line into about 655 area for SPY. We could overshoot to 662 pretty easily, but you

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get the idea. And then we have got the RTY E- mini same. We had this inverse head and shoulders. It had given you a

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target of 2540. Above that, we could rise up all the way to 2600. But for right now, the bounces are still in play. or I would as I called stabilization week. Here's your E- mini.

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We got uh push so far 6635 has already triggered. We need to get and stay above this kind of 6666 for ES to rise into

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6746 and then I think we would have this rejection. So I don't think we're going to get above 6800 area. But the point is

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we are still having a flow of funds right now into the market which is stabilization that I think will only

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last until the end of this week. All right. So you can see those charts and a prior writeup that basically talked about this stabilization into end of

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this week and then midappril to miday. I see more volatility coming. And these are the breakdown levels for those who are shorter duration. So you can always

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do your calls, cheap calls, it's called right tail or convexity or call spreads as you see VIX rolling over because it's

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very market bullish and then we typically go into an earning season with flatness which means market usually does not move violently up or down during an

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earning season. We have this stabilization. So think 6,500 S&P to about 6,800 on the upside. That's our

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stabilization zone. We could go sideways for weeks weeks. Anyway, I don't expect a big breakout above yet. I don't see

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that writing yet. We did have rate volatility that went right up into that monthly trend line I've shown you of 112 and change and then quickly got

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rejected. At the same time, my 10-year yield still closed in the 4.3 area. Not specifically my 4.33, but again, once we

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get and stay above that 4.33, we have a headwind for equities. We're not there yet. So, anyway, that's what I wrote last week. The stabilization I predicted

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for next week came a little early in the form of positioning flows that marked up the tape into quarter end. And basically

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I am still not bullish for QT but I do see stabilization which is basically

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fancy word that should say word not work sideways. So this is going to frustrate the next few weeks I'm afraid. Something

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else on this CTA positioning. I know I alluded to the fact that fund flows could come back in and it h it works like this. This is important to mention

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because it's Monday morning. What do we got ahead of us? I wrote that post flows over fundamentals. That means we had a

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markup on the 31st stabilization on the 30th into the 31st. Short covering can force squeezes and these are mechanical,

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right? the puts monetized and they have to cover and that creates also lots of moves with dealers and then you have the big JP Morgan (JPM) caller which was actually

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20 billion I mistakenly wrote 2 billion no it was much bigger than that was 20 billion notional value it's much bigger but the point is they have to roll that

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and you create this mechanical short covering but mechanical buyers do not step in until the gamma flip level so we

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need to get a gamma flip level and it needs to be sustained. So during I want to kind of highlight CTA positioning.

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You can see back in 2016, everyone's who's bullish is going to say, "Oh,

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good. They're oversold. They're going to bounce." Now, that stayed persistent for a while in quote unquote oversold level with CTAs. And the market didn't move,

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but sideways because we had an oil industry recession going on. It was a major one between 2014 2016. We also had

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the repo madness of 2019 before the COVID and co you know which created a massive massive QE extravaganza and

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global monetary easing and huge budget deficit explosions. But the point is then in 2022 everyone kept getting bullish because CTAs are oversold.

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They're going to load back up again.

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They didn't. They stayed oversold. So in other words, you have to have a sustained gamma flip that then is a new

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trend and they can join in. So CTAs are those price insensitive quants and they've got 150 billion for example to

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buy over the next month. But we need to get above gamma flip level in a nutshell and 50 billion of that is the US for example. So in the meantime, we can stay

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just like a 2022 where we continue to have these bounces and then roll over, bounce, roll over, bounce, roll over.

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And CTAs are not really much of a tailwind. So same thing happened with the yen carry trade unwind in 2024. And

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now here we are. So we are oversold in CTAs. They do have money to buy on the upside. We need to get above the gamma

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flip level. So what's the gamma flip level? Getting closer. 6653.

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And that's all I wanted to say about that. We can have that stabilization last week and this week, right, that I wrote about. And then we can get some more weakness in. But we haven't even

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reached 666, let alone the breakdown level. Where did we break down? Way the heck up here. So, we broke down about 68.42,

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6770, 6700.

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We haven't even made it up to the 10 week yet for this bounce. We could absolutely head up to that 10 week.

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What's the 10 week? 6658. What's the gamma flip? 6653. We need to get and stay above that to negate the bearish

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thesis in my opinion. So, right now we're having a reflexive bounce. We haven't even got bounced into resistance yet or the gamma flip level.