Is There A Pullback In The Air?

* Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: +6.63% | YTD: +0.26% | Wkly: +3.41%

S&P 500 52-wk: +12.35% | YTD: +1.30% | Wkly: +5.27%

NASDAQ 52-wk: +15.13% | YTD: -0.52% | Wkly: +7.15%

NVIDIA 52-wk: +46.41% | YTD: +0.83% | Wkly: +16.07%

U.S.-China Trade Truce: A 90-day pause in tariff escalations between the U.S. and China alleviated trade tensions, boosting investor confidence. AP News+2WSJ+2The Guardian+2

Optimistic Inflation Data: The Consumer Price Index (CPI) rose by 2.3%, and the Producer Price Index (PPI) declined, suggesting easing inflation pressures and fueling hopes for potential Federal Reserve interest rate cuts. AP News

AI Sector Momentum: Investments in artificial intelligence, including significant deals involving Nvidia and AMD, propelled tech stocks. Broadcom, for instance, saw a 9.8% increase due to positive AI developments. Investor's Business Daily+1WSJ+1

Despite the strong weekly gains, the Nasdaq and Russell 2000 remain in negative territory for the year. AP News

While markets rallied, some economic indicators signal caution: WSJ+2Investor's Business Daily+2Reuters+2

• Consumer Sentiment: The University of Michigan's survey showed a decline in consumer sentiment to 50.8 in May, the lowest since 1980, with inflation expectations climbing above 6%. Reuters+1The Guardian+1
• Housing Market: Weak housing starts and falling building permits indicate potential challenges in the housing sector. WSJ

The combination of easing trade tensions, favorable inflation data, and strong performance in the AI sector has reinvigorated investor optimism. However, underlying economic concerns, such as declining consumer sentiment and housing market weaknesses, suggest that caution remains warranted. WSJ

Investors are advised to stay informed and consider both the positive market momentum and the potential headwinds in their investment strategies.

The combination of easing trade tensions, favorable inflation data, and strong performance in the AI sector has reinvigorated investor optimism. However, underlying economic concerns, such as declining consumer sentiment and housing market weaknesses, suggest that caution remains warranted. WSJ

2-Year Treasury Notes: Speculators increased net short positions by 103,690 contracts, bringing the total to 853,575 contracts. Yahoo Finance+2financialjuice.com+2Yahoo Finance+2

• 5-Year Treasury Notes: Net short positions rose by 13,271 contracts, totaling 923,910 contracts. financialjuice.com
• 10-Year Treasury Notes: Speculators reduced net short positions by 39,256 contracts, resulting in 692,442 contracts. financialjuice.com
• Ultrabond Futures: Net short positions decreased by 11,539 contracts, totaling 388,980 contracts. financialjuice.com

These figures indicate a mixed sentiment among speculators, with increased bearish bets on shorter-term notes and a reduction in bearish positions on longer-term securities.

The adjustments in speculative positions may reflect traders' responses to recent economic data and monetary policy expectations. For instance, easing inflation indicators and discussions around potential Federal Reserve interest rate cuts could influence positioning strategies. Additionally, the ongoing utilization of the "basis trade" strategy—where hedge funds exploit price differences between cash bonds and futures—continues to impact Treasury futures markets. Despite concerns over the risks associated with this highly leveraged strategy, the market has remained relatively stable. Reuters

“There is still huge uncertainty regarding the impact of tariffs on economic activity and inflation,” they said in a Bank of America Global Research report.

Michael Burry Turns Bearish on Nvidia and China

Investing.com — Michael Burry’s Scion Asset Management has placed bearish bets on Nvidia and a range of Chinese technology stocks, according to a quarterly filing released Thursday by the Securities and Exchange Commission.

Burry, best known for predicting the 2008 housing market crash and portrayed in The Big Short, initiated put options against shares of Nvidia Corp. (NASDAQ: NVDA), signaling a negative outlook on the chipmaker.

Nvidia has been one of the most prominent beneficiaries of the artificial intelligence boom, but Burry’s position suggests he sees downside in the stock.

Scion also disclosed bearish puts against several Chinese firms that Burry had previously held as long positions, including Alibaba (NYSE: BABA), Baidu Inc. (NASDAQ: BIDU), and JD.com.

According to the filing, the only remaining long position in Scion’s portfolio is a stake in Estée Lauder, the cosmetics company.

The portfolio changes were revealed in a Form 13F, which the SEC requires from institutional investment managers overseeing more than $100 million in qualifying securities.

These filings offer a quarterly snapshot of fund positions but do not provide insight into current trades or the size of options exposure.

1. Tuesday: Retail earnings (Tuesday and Wednesday) will be watched very closely.
2. Thursday: PMI
3. Friday: New Home Sales
4. Paying close attention to: the action in MAG 7, Semis (SMH), financial names (XLF), and the IWM.

The stock market recovered around 20% extremely quickly from its lows. I remain cautious at these levels.

— Richie

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