April 5th, 2024

Iran, unemployment, no rate cuts – the market has been bombarded with a plethora of news in the past 24 hours. Iran is threatening retaliation, Kashkari and Goolsbee have both expressed that the Fed may not need to apply cuts in 2024. Additionally, we have seen better than expected Non-Farm payroll numbers, which questions why the Fed needs rate cuts. Honestly, I find it challenging to process all of this and come up with any concrete reason for a trade scenario; I am, after all, just a simple man who needs to observe market reactions and then comprehend how the market has absorbed all this news.

Let’s scrutinize the tapes and decipher what the market has revealed… Oil rallied, ZN rallied, while stocks took a hit. So, despite lower rates, stocks also plummeted. This is typically a reaction to war, as we witness bonds being bought up and stocks being sold off. However, this morning we are witnessing the opposite – ZN headed lower (rates are rallying) while stocks are gradually recovering. We’ve circled back to the environment pre-Iran announcement. Additionally, it seems the market is looking for reasons to instigate a sell-off in stocks and rally in bonds. Technically, we broke a couple of trend lines in ES and NQ, indicating that yesterday was likely a risk-off day leading into unemployment.

As of today, I anticipate a lot of oscillation in the tapes as the market continues to eliminate the weak hands. It seems like a two-way tape for day traders across all indexes that doesn’t favor any one particular direction. The key is ZN’s performance. If ZN prints a new low for the year, I foresee it exerting significant pressure on RTY, potentially causing ES and NQ to stumble as well. Today’s number likely puts the Fed on hold for further rate cuts, and if rates skyrocket beyond recent highs, I predict this will permeate into the stock market.

I’ll be vigilantly monitoring the YTD AVWAPs in the major indexes, as these levels could become pivotal areas during a significant sell-off – RTY 2043, NQ 17,937, ES 5075.

Employ your short-term strategies and keep your positions small. The environment might be ambiguous, but short-term trading is the preferred choice currently due to volatility. Keep an eye on the rates. Wishing everyone a delightful weekend!

Cheers, DELI

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