Morning Update

Liquidity (Market Depth) is abysmal.  I think we’re probably trading less than half the contracts we would normally be trading in the on-cash settled indexes and relevant ETFs.  This is why we’re getting these huge swings from Support to Resistance and back again.  Normally we would have a LOT of options expiring tomorrow and Friday, but actually we’re really naked, the main expiration is actually all the way out at May 20th.  So this means brokers are focused to hedge as aggressively.

I mentioned always keeping an eye on the Vix, Vvix and VVIX/VIX because yesterday we were heading down, but the moment VIX and VVIX hit an overhead resistance they started to retrace to the means.  

Remember when we talk about retracing to the means, like Bollinger Bands or Keltner Channels, that it is always based on the fact that Volatility reverts to the Means, and often people make the mistake that it’s price reverting to the means, and that is incorrect.  It’s the effect of volatility reverting to the means that moves price.

Let’s see how the FOMC starts today and what goes on tomorrow.  Big week ahead of us.  I’ll be putting out a second note later today on securities, treasury, and mortgaged backed securities, so that the bond situation is a bit clearer.


The final batch of global Manufacturing PMI data for the month of April resembled the general softness of the prior releases, confirming the post-Omicron bounce in global growth likely petered out in March. 

The US ISM data saw Headline and New Orders slow to the lowest levels since mid-2020. The uptick in the percentage of Respondents Reporting Slower Supplier Delivery Times is suggestive of growing supply chain disruptions stemming from China’s Zero COVID policy. Should the lockdowns remain in place or continue to permeate for another ~month, we would anticipate a fifth wave of inflation across the global economy that would catch investors betting on a near-term dovish pivot by the Fed, ECB, and/or BoE off guard. 

However, the uptick back into positive territory in the ISM Manufacturing New Orders/Inventories spread is a positive sign for the US Growth Cycle, for now at least.

Morning Update – May 3rd, 2022

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