Choppy Trading Continues Ahead of the FOMC Announcement Today

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Key Points

  • Stocks Close Lower Ahead of the FOMC Meeting Today…
  • …As Choppy Trading Continues in the Near-Term
  • Sentiment Remains More Greedy Than Fearful in the Options Market
  • MTUM is Very Bullish and Oversold
  • Futures Point to a Higher Open Today

Key Chart: iShares Edge MSCI Momentum Factor ETF (MTUM)

The iShares Edge MSCI Momentum Factor ETF (MTUM) has a Very Bullish Chaikin Power Gauge ETF Rating and continues to lead the SPY. The OB / OS Indicator is moving lower in an oversold position and Chaikin Money Flow is strongly bullish. MTUM is consolidating above the rising long-term trend line and has support in the $130 – $135 range.

Stock of the Day: Sleep Number Cor. (SNBR)

Sleep Number Cor. (SNBR) has a Very Bullish Chaikin Power Gauge Rating and has been leading the SPY since June. The stock is in an oversold position above the rising long-term trend line and Chaikin Money Flow is bullish. SNBR has price-based support near the $40 level and the 21-day ATR is currently $2.67.

The Chaikin Power Gauge Rating for SNBR is Very Bullish due to very strong earnings performance, very strong price/volume activity and attractive financial metrics. SNBR’s earnings performance is very strong as a result of high earnings growth over the past 3-5 years and consistent earnings over the past 5 years.

Pre-Market Movers

Advancers: LB (18%), FEYE (12%), AMD (10%), SMG (8%), BG (6%)

Decliners: SPOT (4%), PD (3%), EBAY (3%), OKE (2%), ED (1%)

Mid-Week Market Update

The SPDR S&P 500 ETF (SPY) has a Neutral Chaikin Power Gauge ETF Rating and continues to lag the IWV (Russell 3000 ETF). The OB / OS Indicator is moving lower, with room to an oversold position, while Chaikin Money Flow is positive. SPY is above the long-term line which has acted as support to the last two pullbacks in the price. 

The prospect that the initial push through $325 was a false breakout remains in play. The zone between $300 and $310 is likely solid support. Above that level, odds favor a test of the February highs as the Power Bar Ratio for SPY is bullish.   

The iShares Russell 2000 ETF (IWM) has a Neutral Chaikin Power Gauge ETF rating and continues to underperform the SPY, though it is trying to lead of late. Our OB / OS Indicator is moving lower in an overbought position and Chaikin Money Flow is bullish. IWM is above the long-term trend line and has a bullish Power Bar Ratio. 

Near-term resistance is in the range between $150 and $155 while support is in the area between $130 and $135. For the time being, we continue to favor exposure to large caps over small caps broadly.

The Invesco QQQ ETF (QQQ) has a Very Bullish Power Gauge ETF Rating and is leading the SPY, despite choppy trading in the near-term. The OB / OS Indicator is moving lower in an oversold position and Chaikin Money Flow is bullish. The fund is above the rising long-term line as it consolidates just below recent highs. Here too, the Power Bar Ratio is bullish. 

Take-Away: In the near-term, the major market ETFs paint a bit of a mixed picture that could lead to choppy, consolidative trading in the days ahead. In the intermediate term, the prevailing trends from the March 23rd lows remain in place, lending an upside bias to the equity landscape. 

Sentiment Update

You can read more about how I view sentiment in this post that I wrote for the Chaikin Blog.

The 13-day moving average of the CBOE Equity Put/Call Ratio is at 0.46, from 0.44 last week. This metric remains below areas that have marked extremes in complacency over the past five years as options traders remain bullish on the prospect for equities. Directional Change: Flat

The VIX has moved to 25.23 from 23.96 last week and remains above the regression line (green). The 10-day moving average of the VIX continues to trend below the peaks that have been witnessed in the past five years. A continued move lower in this average would signal that volatility is returning to a more normalized level. Directional Change: Flat

The CNN Fear / Greed Index moved to a reading of 62 this week from 65 last week, and remains in a greed position. Directional Change: Toward Slightly Toward Fear

Positioning

We highlight the net positioning of speculative traders in the S&P 500 Futures products along with the 52-week z-score of their positioning. The key takeaway is that the specs are no longer extremely short “the market”. The z-score has moved to -0.37 and has continued to rise as the index holds above the 40-week moving average. 

*This data is collected on Tuesdays and updated for the public on Fridays. This chart represents the data that was reported last week on May 5th and was published on May 8th. 

While sentiment is a poor timing tool, it is important to note that options traders remain overly greedy as speculators cover short positions. This dynamic points to the possibility that investors are not overly protected, which could accelerate a move to the down side should one begin in the near-term. Keep this in mind should SPY break below the $310 level. 

Market Commentary/Looking Ahead

US equities were lower in Tuesday trading, finishing near the worst levels of the day. The defensive REITs and Utilities were leadership at the sector level while Materials and Energy lagged. Treasuries were mostly stronger with the curve flattening. The dollar was stronger vs the euro but lagged the yen. Gold finished up 0.7% to a new nominal high. WTI Crude settled down 1.3%.

  • Outperformers: REITs +2.12%, Utilities +1.56%, Consumer Spls. +0.30%, Healthcare (0.14%), Financials (0.28%)
  • Underperformers: Materials (2.18%), Energy (1.75%), Consumer Disc. (1.23%), Tech (1.22%), Communication Svcs. (0.92%), Industrials (0.66%)

S&P futures are up 0.2% with the FOMC meeting on deck (it is not expected to be a meaningful event). Asian markets were mixed overnight, China gained over 2%, while Japan lost more than 1%. European equities are mixed as well. Treasuries are slightly weaker. The dollar is weaker on the major crosses and sitting near two-year lows. Gold is up 0.5%. WTI Crude is up 1.1%.

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Disclaimer

Disclaimer: Chaikin Analytics LLC is not registered as a securities broker-dealer or advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Chaikin Analytics does not recommend the purchase of any stock or advise on the suitability of any trade. The information presented is generic in nature and is not to be construed as an endorsement, recommendation, advice or any offer or solicitation to buy or sell securities of any kind, but solely as information requiring further research as to suitability, accuracy and appropriateness. Users bear sole responsibility for their own stock research and decisions. Read the entire at www.chaikinanalytics.com/disclaimer

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