Credit spreads remained steady yesterday, but there were notable movements elsewhere. The one-month implied correlation index, which gauges how stocks might move together, increased. At the same time, the 50-delta one-month implied volatility, reflecting expected price changes, also rose. Meanwhile, the pair saw a significant drop.
All these indicators suggest stocks dropped, making you think the S&P 500 went down yesterday, but it actually went up. It seems like big computer-driven trades (called CTA flows) had a lot of control over the market yesterday, especially since there’s been low trading activity since the (a Japanese stock index) dropped on August 5.
To give you an idea, on July 3, 2024, which was a half-trading day, the had about 809,000 contracts traded. yesterday, there were just under 921,000 contracts traded. This shows how big trading moves by these systematic funds (like CTAs) can really push the market higher.
Canadian Dollar Eyes CPI
Today, I’ll be keeping an eye on the Canadian (Consumer Price Index) data, which comes out at 8:30 AM ET. People expect a 0.4% increase from last month and a 2.5% increase compared to last year.
The has been going down a lot since early August, when it was at a high point. Now, it’s getting close to being too low (oversold) as it just broke through the lower Bollinger band yesterday (a tool that helps track prices).
The RSI (Relative Strength Index, another tool to see if something is too high or too low) is at 34.7, which means it could still drop a little more.
If the Canadian CPI comes in weaker than expected, the USD/CAD might go up. But if the CPI is stronger, the USD/CAD could become oversold.
There’s likely some support for the USD/CAD around the 1.36 level (which means it might not drop much below that).
The USD/CAD (which shows the relationship between the US dollar and the Canadian dollar) often moves in the opposite direction of the S&P 500.
So, when the USD/CAD reaches a low point, the S&P 500 usually reaches a high point and the other way around. It’s not always exact, but when we use this with other tools, it helps us get a good idea of what might happen next.
Oil Vulnerable to Bigger Decline
prices dropped yesterday and are getting very close to a significant breakdown. If the trend breaks, it could lead to a retest of support at $67.
The momentum on the RSI (which measures the strength of price movements) looks bearish to me, meaning it suggests prices might keep falling.