On research regarding yesterday’s crazy SPX/SPY move I told you I was surprised, and in part because there were so few contracts above 4400 and 4500 that I didn’t think Dealers would need to hedge considerably (Resistance at 4500).
However, with the VIX dropping sharply 5 points that created an volatility crush on the futures dealers had SOLD to hedge all the lower SPX options contracts that were looking for a move to the downside on SPX and NDX. This created a LOT of buying action from the Dealer side, which I’ve personally NOT seen before. So I was not able to give you a warning sign of the directional explosion to the upside.
I know some people pointed to the gap that was above us and needing to fill that, but technically there was not enough buying movement to drive price that far up. However, Dealers buying can create that kind of movement.
We still have a lot of news economic news this week regarding inflation and rates, etc and I think they’ll just be as hawkish as we’ve seen previously.
What will be more important about this opening Earners period is what banks release regarding the guidance the major players should express how much treasury surplus they’re willing to buy up as the Fed is aiming to remove 60 Billion on Treasuries from their books. This means they’ll let 60 Billion expire, without rolling them into new contracts. This means the treasury will have to refinance these treasures to other institutional actors, and the larger banks are needing to see high yields on their books and do not seem to be willing to buy up the refinanced treasury bills.
These means we need to see what will happen in foreign actors in our markets (other Central Banks) but after what the US did to Russia, sanctioning their USD Reserves, as freaked out a LOT of players that normally would like to buy up US treasuries for their pensions and state life insurance policies namely, China and Japan. However they’ll need to see much better yields because the US Dollar is SO strong against their currencies at the moment it could actually cause them to have major losses if currencies continue to swing so wide.
So we need to watch, and listen well, because we need to clearly understand where this $60 Billion of treasuries per month are going to go, who is going to be buying them, and how that will effect currency markets (not just bonds and treasuries).