Thread by @Monica___K

Rising volume in $XLK, $VTV, and good enough $SMH transparently prepared the ground for improving #ES market breadth – but the one factor that made me reconsider the requisites of the medium-term (bearish) outlook, was this.
Financials.
LONG THREAD 👇

2. Back when I took the MT bearish view (mid Mar), it was well justified as two significant #banks had fallen, $CS was getting back on the radar screen, #deposit outflows continued, and demand for the #Fed emergency programs was rising.
It was questionable whether $KRE and $XLF

3. would stabilize.
The incentives for #deposit outflows were still present (#Fed hadn‘t yielded to market pressures to ease, and still doesn‘t, short-term #yields kept solidly above 5%, #Fed balance sheet kept declining, #M2 and #margin debt shrinking while consumer #inflation

4. expectations went on surging).
It took too long for $FRC to fail – the odds of a sharp downside move were high in the prior two months, yet almost every market reaction to #banking or disappointing data (on the correct #recessionary call front), had been quite readily bought

5. – and not even my correct call for hawkish May #FOMC forced a lasting #ES break of 4,078.
That explain why I had been issuing so many daily #stockmarket bullish calls with upside targets met in all these weeks and days.

6. Big picture, #SPX remains confined to a prolonged and tight #trading range that took shape in the final days of Mar, and is still persisting after one failed breakout attempt – and my other risk-on metrics don‘t indicate a break higher out of their ranges either.

7. Crucially, this is all happening while the real economy prospects keep darkening, from #JOLTS to #unemployment claims (again pinned as Mar/Apr uptrend start) to consumer #confidence, to #manufacturing, to #bank #lending standards, you name it.
#LEIs are still declining,

8. volume #retailsales are down so much more than value #retail sales (indicating that companies are squeezing the #consumer, hence $XLP is picking up). Then, China growth data are as mixed as U.S. retail sales figures while markets keep expecting over 175bp cuts till 1H 2024 is

9. over, which I doubt thoroughly.
This means to me that the worst isn‘t over – not in terms of real #economy deterioration, #banking and the #stockmarket.
It merely indicates the upcoming #stagflationary reality (subpar growth outdone by persistent, sticky #inflation affecting

10. markets there where it matters, in necessities of life, well beyond the owners‘ equivalent rent optics).

Yet, several developments yesterday made me urgently reevaluate the MT #ES bearish outlook – crucially the parameters of it being, remaining justified (beyond the fact

11. of positive #stockmarket returns not exactly correlating with plunging #LEIs).

First, $KRE might not be in the mood of sliding too much more while $XLF is reluctant to move even below May lows only – all on solid daily volume yesterday.

12. Second, #smallcaps are showing signs of life, and the $IWM mid Mar lows are at risk of becoming distant – again on solid daily volume.
Third, #ES market breadth as measured by percentage of #stocks trading above their 50-day moving averages, improved a lot yesterday both in

13. #NDX and #ES. Should we see more of that, rotations getting stronger, and leaving the 500-strong index less dependent on the Top 10 chiefly tech stocks, the buyers would rejoice.
Fourth, this weaknening #tech (and #communications) leadership is underlined by #defensives

14. (#utilities, #staples) turning considerably more constructive, which is what #financials seek to follow. Add in $XLI refusing more weakness while $XRT goes up, and things could get dangerous for the #ES bears fast.

If.

15. If not just #ES 4,177 or 4,188, but 4,209 (called for you back in Apr as the real resistance) get broken to the upside (considering this scenario, ignore the waning volume at range‘s tops while the range‘s bottoms get bought convincingly), proving the above described bullish

16. turns to be more that gyrations within their own ranges and deteriorating macroeconomic dynamics.
The „least“ of which being #debtceiling (positive noises / resolution) headline sensitivity with additional risk-on fuel as #USD hiding place gets a hit, stocks get chased anew.

17. The #Fed though is in a different position than it was in 2011 – now it just can‘t turn around and provide a bid for #Treasuries (hello #TGA), which is why I‘m not looking for #yields to retreat in the #debtceiling resolution aftermath the way they did 12 years ago.