Market analysis for July 3rd, 2024

Good morning traders! Welcome back to a shortened trading session. We aren't taking today off but it will be a light day for us with just a couple of adjustments and no new adds to the portfolio. Shortened days like this don't happen often but I've found the the risk/reward for 0DTE's is not very good. Tomorrow the market is closed so we'll be back Friday to hit it hard. Yesterday was a good day overall. 

I added another column to our results matrix for notes and potential gains. We've been doing small event contracts setups that are very asymmetric in nature. They usually come in around 200%-800% ROI potential but are very low probability trades. Statistically these types of setups will lose money 90% of the time but one win puts you nicely in green. 

Our trade docket for this shortened session is small: DIA, FSLR, LEVI.

A Labor Department report on Tuesday showed that U.S. JOLTs job openings unexpectedly rose to 8.140M in May, stronger than expectations of 7.960M.  
Federal Reserve Chair Jerome Powell said Tuesday that recent economic data indicate inflation is returning to a downward trajectory, but stressed that policymakers require additional evidence before reducing interest rates. While Powell refrained from offering any specific guidance on the timing of the first rate cut, he acknowledged that the central bank has made “quite a bit of progress” in lowering inflation. He added that he would like to see that progress continue. “Because the U.S. economy is strong and the labor market is strong, we have the ability to take our time and get this right,” Powell said. “And that’s what we’re planning to do.”
U.S. rate futures have priced in an 8.8% chance of a 25 basis point rate cut at the next central bank meeting in July and a 59.9% probability of a 25 basis point rate cut at the September FOMC meeting.
Meanwhile, the U.S. stock markets will close early at 1 p.m. Eastern Time today and remain closed on Thursday for the Independence Day holiday.
Today, investors will closely monitor the release of the Federal Reserve’s minutes from the June meeting, which may provide further insights into the policymakers’ views on inflation, interest rates, and the economy. 
On the economic data front, all eyes are focused on the U.S. ADP Nonfarm Employment Change data, set to be released in a couple of hours. Economists, on average, forecast that the June ADP Nonfarm Employment Change will stand at 163K, compared to the previous number of 152K.
Also, investors will focus on U.S. Initial Jobless Claims data. Economists estimate this figure to arrive at 234K, compared to last week’s number of 233K.
The U.S. ISM Non-Manufacturing PMI and the U.S. S&P Global Services PMI will be closely watched today. Economists forecast the June ISM Non-Manufacturing PMI to stand at 52.6 and the June S&P Global Services PMI to be 55.1, compared to the previous values of 53.8 and 54.8, respectively.
U.S. Factory Orders data will come in today. Economists foresee this figure to stand at +0.2% m/m in May, compared to the previous figure of +0.7% m/m.
U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -0.400M, compared to last week’s value of 3.591M.
In addition, market participants will be anticipating a speech from New York Fed President John Williams.

My bias for today is bearish. Traders have already headed for an extended holiday weekend and volume is low. Most traders I know don't want to be long over the long weekend. 

We had a strong finish going into the close yesterday but nothing effectively has changed. SPY and QQQ are still stuck at ATH's and the IWM is still struggling to get above its 50DMA while the DIA treads water. 

Looking at the VTI, which I use to get a broader view of what the "market" is doing, we see the consolidation continue. No real signal here. 

There are however, some areas for concern. ​The 10-year note yield is now up over 20 basis points in since Friday's intraday low. That's 20 basis points in a matter of hours without any material news. For the first time in almost 5 weeks, the 10-year note yield is set to break above 4.50%. Bond markets are trading like rate cuts got cancelled and inflation is on the rise. Are bond markets telling us something?

This is also of concern. ​This is quite an unusual setup: while the S&P 500 has moved up, the percentage of S&P 500 stocks above their 50-day moving average has dropped.

​In the last 4 instances when the % Yield Curve Inversion has gone above 70% and then back to 50%, we saw massive drawdowns for the index.

Once again, I'm not predicting a crash. I have no idea when or by how much we reverse but...reversals do happen. 

No intra-day levels for me today as I'll be skipping any new 0DTE setups.
I hope you all have a nice break. Go do something fun and be safe. I'll see you all Friday!