Volume in the S&P 500 futures has completely vanished over the last couple of days, with contract counts declining each session. The rising wedge pattern didn’t work out, despite several attempts that brought us close. Unfortunately, close isn’t good enough.
I don’t think anyone needs me to say that the possibility of the market reaching a new high is a given; I have said that many times when we got over 5,800. However, I’m skeptical about this, as market dynamics today are not what they were in 2020 or 2022/23.
There’s not much that can snap the market out of this malaise until we get new commentary on tariffs or some economic data that changes the narrative. As I noted, with implied volatility at 17 and realized volatility below 12, it’ll be challenging to see the market move in anything but a tedious grind, similar to what we experienced in the days leading up to the recent push higher, which was only able to occur because the VIX spike to 21.
In some ways, the current environment reminds me a lot of early 2018. The Nasdaq dropped about 15% in January 2018, followed by a full recovery and new highs, only to give it all back again shortly afterward. I’m not exactly sure why it feels reminiscent, but it does. However, just because something reminds us of the past doesn’t mean it’s a roadmap for the future.
Meanwhile, as we know, this market is only as strong as Nvidia (NASDAQ:NVDA). The biggest issue right now is that Nvidia is officially overbought, trading above its upper Bollinger Band with an RSI approaching 74. Of course, it could become even more overbought, but it’s already pushing the limits at this point.
Meanwhile, repo market rates rose yesterday as the quarter-end approaches. The trade-weighted average repo rate reached 4.41%, and I would expect today morning’s SOFR to rise above yesterday’s 4.3%. Typically, as we head into quarter-end, overnight funding markets tighten, which drains liquidity from the market.
Nothing has to happen, but when things happen often enough, I pay attention to them.