Morning Notes – 3/29/2022

Good Morning:

• The rally continued overnight, pushing the 4600 level, about 25 points above our original projections from last week.
• Anything above 4575 is a bonus, given our original projections.
• The 4600 level also marks the area where call trading may influence the movement of the S&P 500 again.
• For this rally to continue, we want to see the Call Wall (now at 4600) roll up to higher strikes, which would indicate that calls are filling in at strikes overhead.
• On the downside, due to the large gamma strikes now below, it would take a few days of selling to hit 4500.
• Below 4500, the air pocket remains, but the risk of breaking into that zone over the next few sessions seems materially reduced due to lower forecast daily ranges of plus or minus 30 points.
• Again, this rally reflects the crazy behavior we often see around the quarter-end. The stock market seems divorced from reality and interest rates. 
• For money managers, what the quarter-end holdings look like on their customer statements and quarterly S.E.C. filings sometimes takes precedence over common sense. Managing money can be a very short-term oriented endeavor at times.
• The rally may also reflect anticipation of a peace deal in Ukraine. Even if a deal materializes, the stock market will have to step back and refocus on inflation, Fed Policy, and interest rate concerns.
• Key A.M. Trade Levels and Charts are up. I am marking 4600 and then 4610 as resistance and 4550 then 4520 as support.
• The market’s behavior reminds me of the final blow-off rally right before the 2000 dot-com bubble top.
• However, keep in mind that stocks have historically performed better than one might expect in the initial stages of inflation. Also, while I get that the yield curve may be inverting, the recession that follows doesn’t usually get underway until after the inversion has come and reversed.
• In other words, there usually is quite a bit of delay between these “leading” indicators and any recession that ultimately follows. We see the same phenomena with Consumer Confidence as pointed out yesterday.
• Again, we are on the sidelines until the picture is clearer. I view the short-term price action above 4600 as overbought.

A.F. Thornton