Morning Notes – 6/2/2022

Good Morning:

• In just about any time frame, traders nearly always buy the first visit to the mean (21-period EMA) once conquered. Yesterday was no exception on the daily chart.
• And there certainly is room to take the market higher and still be in the bear or a recovering bull.
• But the bears caught an edge yesterday, as the bounce yesterday was anemic. Comments from Jamie Dimon, CEO of Chase Bank, accelerated the move into the 21-day line and muted the bounce as he advised that there was a financial “hurricane” coming.
• Recall that Mr. Dimon was one of the few CEOs (and Chase was one of the few banks) who survived the Great Financial Crisis without a hat in hand to the taxpayers.
• Mr. Dimon is a highly competent banker and an exceptional leader in managing risk.
• Combine this with similar warnings from people like the head of the European Central Bank, and you will begin to understand the current pale that remains over the markets.
• But I will give Janet Yellen, current treasury secretary, some credit where it is due.
• In a rare admission, Ms/ Yellen stated that she completely screwed up her “transitory” inflation forecast.
• These people are fallible humans, after all. And they suffer both from Groupthink and academic isolation.
• Admitting you have a problem is always the first step to solving it.
• Surprisingly, she has caught nothing but grief from her comrades on the left for admitting she got it wrong. I find the admission refreshing.
• Futures have edged higher to 4120 overnight.
• Our models suggest similar volatility to yesterday, with a plus or minus range of 45-50 points from the open.
• 4100 remains the main support level and key to containing volatility.
• 4150-4160 (SPY 415) remains solid resistance, followed by 4200.
• There is a clear trend toward buying short-dated puts and selling calls in the options market.
• The piling on of these bearish option plays could easily push the market over again to retest the recent lows at 3800.
• The key for the markets is to hold the conjunction of the 5-day and 21-day lines currently sitting around 4075.
• Global tensions and climbing food and oil prices add to the worries.

A.F. Thornton