Pristine Market Analysis & Watchlist 2/16

The party is over!

Team,

Our thesis blossomed from a seed into a beautiful flower today!

Thanks so much for being a part of the Pristine Capital Community. Your support truly means the world to me.

-Andrew

---

Today’s events kicked off with a hotter-than-expected PPI report. Analysts were expecting a +.4% MoM advance, and it came in at a whopping +.7%

As one might expect, The DXY dollar index strengthened +.13% and broke out of a short-term consolidation area, as higher-than-expected inflation could result in higher interest rates for a longer period of time.

And the ZN_F 10yr treasury futures contract continued it’s selloff. It has officially given back all of it’s YTD gains, and then some! We have to remember that interest rates are a direct input for stock valuations. It made NO SENSE for stocks to continue rallying as long as they did while treasuries were getting crushed like this. These things are tough for investors to realize when stocks are going up, but when the hangover sets in it all becomes obvious.

Equity Dashboard

After diverging from bonds and the dollar index for so long, equities finally gave way and sold off. But they didn’t go down without a fight! They rallied off the lows for part of the trading session before eventually showing their true colors. Volatility exploded higher, but only after it was completely crushed yesterday! Most players that anticipated this selloff a mile away were likely shaken out of all long volatility trades and/or short positions, only to then watch the market fall.

The talking heads are attributing today’s selloff to the following headline from Bullard:

I believe the market had sucked in as many victims as possible, and the Bullard headline had very little to do with why the market actually sold off. After all, the bond market had already priced in more fed rate hikes way ahead of the equity selloff! His comment was just a confirmation of what the bond market had already priced.

SPY Price Action Analysis

The S&P 500 topped on Feb 2nd, and has been stair-stepping lower in a narrow channel ever since. After breaking out yesterday and likely sucking in more longs, the SPY failed and fell back into the trend channel.

• Heading into the week, the options market implied a 2/17 SPY close between 397.13 and 418.27. I believe a large directional move is coming to cap off the week tomorrow.

Beware the Jaws

The stock and bond market are pricing in two different realities, and only one will end up being correct.

Lisa Abramowicz @lisaabramowicz1

Since the end of January, there's been a significant repricing of Fed rate hikes. Last month, traders were pricing in terminal rates of 4.9% this year, with about 40bp of rate cuts by yearend. Now they're pricing in rates getting up to 5.3% and declining to just 5.1% by December.

The gap between the Nasdaq QQQ ETF and the 10yr US treasury future began to converge today, but it is still incredibly wide! Treasuries lost all of their year-to-date-gains, while the Nasdaq is still sitting on a year-to-date gain of +14.68%. Let that sink in for a minute🤯

Could it be because technology shorts were being squeezed? From Jan 31st to Feb 15th, we experienced record levels of short covering…

H/t The Market Ear

So where does this leave us now? This is about to get juicy, so make sure to upgrade if you haven’t already! I’m biased but I think it’s well worth it!

---

In the following sections of tonight’s update, I’ll cover my research in preparation for tomorrow’s trading session

✅ Trend Model Update - Our proprietary indicator that informs us on how aggressive/defensive to position in the market

✅Market Strategy - My trading plan

✅ Today’s Trade Blotter and Position Update

✅Daily Watchlist - We scan thousands of stocks and hand-pick the best reward/risk opportunities