The S&P is in a slow grind, and that means different playbooks for ES trades and stocks. But this is not just a summer phenomenon - June was great for day trades - and so the playbooks must be tailored to the specific regimes.
Over the last five trading sessions, the S&P is trading inside of a box mostly around Friday's range from roughly 7551 to 7627 (futures prices). Friday and Monday provided directional moves within it, but not without fakeouts that complicate entry or big wicks which stop trades out. Tuesday was virtually untradeable, Wednesday brought a little two-sided action, and then today we're back into rotation without conviction.
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In futures trading, my general rule is to avoid trades in the box. The first balance clue we had was Monday trading inside of Friday's range, and we remain there today. Activity inside of there has proven to be extremely tricky. I broke this rule today on a good signal, and the result was predictable: a loss. The key lesson is that a good signal in a bad regime makes for a bad trade.
Underneath this action, or lack thereof, money rotated from chip stocks to the Magnificent Seven (MAGS) stocks, which I first shared in late June. An article out this morning adds some detail: MAGS names have added about $1.5 trillion in market value while semiconductors excluding Nvidia have lost nearly $1.7 trillion, essentially canceling each other out at the index level.
VIX at 16.5 continues to be in calm baseline under 18, while credit is tight (high yield spreads are 271 bps) and supportive of risk assets (investors not demanding wider premiums for riskier companies). A miserable week inside the box at the index level is not the same thing as a risk-off breakdown.
In buying stocks, the story is rotation and my strategy is not avoidance. MAGS stocks like Amazon, Nvidia, Google, Meta, and Apple turned at or near their 200-day moving average. Tesla and Microsoft remain under the 200-day, with Tesla stock at the same price it was at nearly five years ago. The 200-day is often where investors look to get into a stock, so the fact that much of MAGS has outperformed off of that location is no coincidence.
Elsewhere, a couple of themes that are showing strength, and which I am trading in, are online retail (buoyed by Amazon) and digital payments. Chips have been wiped out and the crowded AI trade has gone with it, so shifting into names like ACIW, BABA, and GCT has been the move. Others like NU and SE are holding up, but slower. I never intended for this to be a stock picking thing, but some of the rotations have been interesting to watch.
Going forward, I am watching for price to break out from the box and stay there. This could introduce some much-needed volatility. A breakout from that box could also bring trending conditions to individual stocks. Whichever way it breaks, a widening in credit will change the story materially. Breaking out to the upside with widening credit looks fragile while breaking down with credit widening looks like confirmation.