S&P 500 and Nasdaq 100 Set New All-Time Highs Pre-Holiday

U.S. equity markets are off to a strong start in July, historically the best month for stocks and options

• After trading sideways for the past 10 days, both the S&P 500 (/ESU4) and Nasdaq 100 (/NQU4) broke out higher today, hitting fresh all-time highs intraday. 
• The Russell 2000 (/RTYU4) continues to meander around 2050, offering a directionally neutral opportunity for traders who have doubts about strength in /ESU4 and /NQU4. 
• July is usually a great month for stocks, and July 2024 is proving no different, so far. 

Market Update: S&P 500 up 1.13% month-to-date 

U.S. equity markets are off to a strong start in July, which shouldn’t surprise anyone who has looked at recent history: July hasn’t produced a red month for the Nasdaq 100 in a decade; it’s the best month of the year for the Nasdaq 100 over the past 10 and 20 years; and the first two weeks of July have been the best two weeks of the year for the S&P 500 not just over the past 10 or 20 years, but even dating back to 1928. Volatility remains low, and with technical uptrends firmly intact, new all-time highs are being found. 

/ES S&P 500 Price Technical Analysis: Daily Chart (October 2023 to June 2024) 

In last week’s update we noted that “the pullback in the S&P 500 (/ESU4) over the past week is fairly typical: Since the lows in October 2022, whenever the S&P 500 has been more than 3% above its one-month moving average (daily 21-EMA), it has averaged a 0.38% dip over the following week (n=30). A correction in time instead of price may have transpired; the consolidation may be a bull flag, suggesting a move to all-time highs may be near.”  

With the bull flag providing a topside breakout, the measured move calls for gains toward 5673.25. As long as /ESU4 remains above both its one-week (daily 5-EMA) and one-month (daily 21-EMA) moving averages while volatility remains low (VIX below 15), long at the money (ATM) call spreads remain an appropriate way to express a bullish bias. 

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (October 2023 to June 2024) 

Similarly in the Nasdaq 100 (/NQU4), the sideways range has yielded a topside breakout. We previously noted that “/NQU4 has reasserted itself back above its one-week moving average (daily 5-EMA), a hallmark of strong momentum that carried /NQU4 higher throughout May and June. The measured move to 20458 has not been achieved, and with volatility remaining low (IVR: 13.8), it thus remains that long ATM call spreads are an appropriate way to express a bullish bias.” The bias and strategy remains appropriate, although the measured move now eyes a topside target at 21016. 

/RTY Russell 2000 Price Technical Analysis: Daily Chart (October 2023 to June 2024) 

The price is right for the Russell 2000 (/RTYU4) near 2050 (apparently). Thus, as it was last week, “nothing has changed for the [/RTYU4] for weeks, failing to scale above 2175 or below 1925 in any meaningful capacity. As such, the approach remains appropriate and volatility is higher in /RTYU4 (IVR: 21.5) than in either /ESU4 or /NQU4, making short strangles or iron condors bracketed around the six-month range highs and lows an appropriate strategy in the near-term.” However, with /RTYU4’s resiliency in the face of higher bond yields and a spike in oil prices, traders may see /RTYU4 biased toward the topside of its recent range in the near-term. 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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