Morning Notes – 6/1/2022

Good Morning:

• Yesterday’s price action mainly behaved according to the script, consolidating the short-covering gains from last week.
• The geopolitical situation continued to deteriorate, and I will have more to say about that in the Weekly/Monthly forecast.
• Futures are trading at 4130 after a quiet overnight session.
• Today, we see support at 4100, with resistance at 4160 (SPY 415) and then at 4200 (Call Wall).
• Calls continue to fill into the 4150-4250 strikes, which add to overhead resistance but also help reduce overall volatility.
• We are likely to see short-dated hedging strategies lead us into the next Fed meeting. Protection is relatively cheap right now.
• Today’s expected move is 44 points plus or minus the open, with the WEM range still set between 4050 and 4250.
• Overnight inventory is balanced, so there is nothing to help guide us at the open. Let the market settle in a bit before day trading today.
• I still believe that the S&P 500 Index can hit the 4185-4233 target mentioned last week and remain in the bear.
• Sustained price action above 4211 would cause me to reevaluate whether the bear is still in place.
• The market may continue consolidating last week’s gains for a few more days.
• All eyes will continue to point to mid-June and the next Fed meeting and Quarterly options/futures expiration.
• In the meantime, oil prices keep climbing, and our current overlords in Washington continue pursuing policies that are virtually certain to lead us into the economic abyss.
• The European governors are also leading Europe into the abyss, so there is comfort in numbers.
• In the meantime, Vlad and Xi are smiling at our demise.
• There is no reason for them to nuke us. If Russia and China wait patiently just a bit longer, we are sure to destroy ourselves from within.
• Other than a peace deal in Ukraine, there are not many positives to write home about. The monthly employment report should be interesting later this week.
• We have a couple of Fed governors speaking today (Williams and Bullard) so be careful around 11:30 AM EST.
• On the economic front, we also get JOLTS job openings, ISM Manufacturing, and the Fed’s Beige Book to give us some additional economic clues.
• Recall that the bad news is good news for interest rates at this stage until it negatively impacts earnings.
• We are always wise to follow the price action with no preconceived notions.
• But the issue remains whether we just ended a cyclical bear with enough damage done to begin recovering.
• It is possible, and if it were October, I would be more convinced.
• The alternative is that there is more to come after we meander through June, July, and August.
• I am betting that the May low is not the final low, which is more likely to be achieved on the 18-month cycle low later this year.
• If my calculations are correct, and we know I am a genius at this (you can laugh now), we just finished the mid-point of the nominal 18-month cycle, and the ultimate low lies out in mid-September.
• As they say, one day at a time.

A.F. Thornton