When the Surface Screams and the Structure Stays Silent, Trust the Structure

KR Opinion

We come into the last few sessions of June with the S&P carrying a minor decline of around three percent, and I want to be clear from the outset about how I am reading that pullback. This is not the start of something that worries me. Over the last couple of months, we have watched a pattern repeat itself with almost mechanical reliability. The war in Iran flares, the tape sells off on the headline, and then the moment the United States and Iran signal they are willing to cease hostilities and sit down to negotiate, we get an immediate rally and recovery. That reflex has defined this market, and until it stops working, I am not going to bet against it.

Last week gave us a heavy dose of erratic behavior in the large caps. Volatility ran up and down through the week, and the WaveTech Database continued to whipsaw right along with it. I do not want to dress that up as something cleaner than it was. It was choppy, it was noisy, and it tested the patience of anyone trying to trade it. But here is the part that matters more than any single session, and it is the point I stressed all week both on YouTube and through the Substack. Coming into this week, there were no real material changes on the intermediate database. That was one of my concerns during the week, and it remains my anchor concern now.

Let me slow down on why that distinction carries so much weight, because it is the difference between reacting to noise and reading the actual market. The short-term readings are designed to move. They twitch on every headline, every block of selling, every burst of volume into the close. If you trade off them alone you will get chopped to pieces in a week like the one we just had. The intermediate database is the layer that filters that noise out. It moves slowly, it changes only when the real weight of the market shifts, and right now it has not moved. The short term thrashes around while the intermediate structure sits still, and that combination is exactly what tells me the underlying condition of this market has not actually changed despite all the surface motion. When the surface is violent but the structure is calm, the structure is the truth and the surface is the distraction.

So we carry that volatility into the overnight session with just a couple of days left in the month. We could see some minor window dressing as funds tidy up their books for the quarter, but this week is about far more than calendar mechanics. This is an employment week, and the labor data is going to be the key feature. Nonfarm payrolls are expected to come in at around one hundred and ten thousand new jobs. That is a stable number. It is not a number that breaks anything. And stability is exactly the through line I keep coming back to.

If you go back to what Kevin Warsh said in his statement at the last Federal Reserve meeting, the message was that they believe labor markets are stable and not likely to change anytime soon, and that they will continue to monitor them. I take him at his word on that. It lines up with my own expectation, which is that it is highly likely we do not even get a Fed press conference at the next meeting. Let me explain why that distinction matters, because it is easy to skip past. If there is no meeting, that is the Fed telling you the situation is status quo. If there is a meeting, then there is probably going to be some sort of change attached to it. Right now I lean toward status quo.

I still do not think inflation is climbing at a level that would push this Fed to raise rates. In fact, with oil prices under control, the more realistic path is the opposite. Let me connect that to something concrete, because it is the kind of link that gets lost in the noise. Oil is one of the most direct inputs into the inflation picture. When crude is contained, it pulls down the pressure on everything that has to be moved, made, or heated, and you can see from the technical overview below that crude is not just contained, it is under real downside pressure. That takes the strongest argument for a rate hike off the table. The pressure, if anything, leans neutral to lower, and I still see the possibility of rates coming down toward the end of the year. The market seems to be positioned more hawkishly than the actual Fed is, and that gap between perception and reality is where people get themselves into trouble. They brace for a tightening that the data does not support, they position defensively, and then they get caught offside when the Fed simply holds. I do not see the Fed as the factor here. The employment numbers this week will matter to a point, but only to a point. As long as they keep coming in as expected, there is not going to be any real impact or any genuine concern about employment going forward.

I will also be watching the war for any developments and any sign of further stability. We had a little flare up recently, and what was telling was how quickly it diffused. It became obvious very fast that the United States has no tolerance for these provocations, and the market read that and moved on. That speed of resolution is itself information.

Now to the level that I have been talking about, because I want to put it on the record clearly. There is a general leaning toward a bit of a decline on the S&P toward the 7200 to 7100 level, with an extreme possibility of going down to 7000. I am not calling for that as my base case this morning, but it is the zone I am watching. While the market is rebounding at the moment, it is still locked into this sideways, choppy range, and that range is the whole story right now. My general view is that the market remains relatively bullish. There is an underlying bid beneath this tape, and you can feel it every time price gets pressed lower.

That underlying bid is also why I am setting aside the strange close we saw at the end of last week, when the market dropped nearly thirty five handles with about five seconds to go and then bounced right back. I have not seen anyone explain what that was, and I have not heard much about it since. It looked like some sort of aberration in the order book, something incidental, an error that came in and was retraced almost as quickly as it appeared. I am not going to build a thesis around a five second anomaly that corrected itself.

So as we move through this week, the focus is labor and the typical war headline reactions, which is exactly what we are seeing in the overnight tape coming into Monday’s open. My overall expectation is for the choppy range to continue, with the critical levels sitting below the market. This is the through line I want you to hold onto. Every piece of this week ties back to the same condition. The intermediate database has not shifted, the labor data is expected to print stable, the Fed is more likely to hold than to move, oil is contained, and the war headlines keep diffusing as fast as they flare. None of those inputs argues for a regime change. They all argue for more of the same range. You will find the technical overviews below for the specific grid levels and probabilities, and they sit below the market for a reason, because that is where this range gets tested if the bid ever steps away. But at the level that matters most, all biases continue to read stable to positive. The underlying condition has not changed, the bid is still there, and I will unpack all of this in much more detail on Monday’s video.

Economic Calendar, Week Ahead

Week of June 29 - July 03

Tuesday, June 30
09:00 ET: FHFA Housing Price Index
For: Apr | Trading Impact: Low | KR Forecast: 0.2% | KR Forecast Cons: 0.2% | Prior: 0.1%

09:00 ET: S&P Case-Shiller Home Price Index
For: Apr | Trading Impact: Low | KR Forecast: 0.8% | KR Forecast Cons: 0.9% | Prior: 0.8%

09:45 ET: Chicago PMI
For: Jun | Trading Impact: Low | KR Forecast: 55.0 | KR Forecast Cons: 60.0 | Prior: 62.7

10:00 ET: Consumer Confidence
For: Jun | Trading Impact: High | KR Forecast: 93.9 | KR Forecast Cons: 94.2 | Prior: 93.1

Wednesday, July 01
07:00 ET: MBA Mortgage Applications Index
For: 06/27 | Trading Impact: Low | KR Forecast: NA | KR Forecast Cons: NA | Prior: 1.0%

08:15 ET: ADP Employment Change
For: Jun | Trading Impact: Medium | KR Forecast: 125K | KR Forecast Cons: 112K | Prior: 122K

09:45 ET: S&P Global U.S. Manufacturing PMI - Final
For: Jun | Trading Impact: Low | KR Forecast: NA | KR Forecast Cons: NA | Prior: 55.7

10:00 ET: Construction Spending
For: May | Trading Impact: Low | KR Forecast: 0.6% | KR Forecast Cons: 0.5% | Prior: 0.4%

10:00 ET: ISM Manufacturing Index
For: Jun | Trading Impact: High | KR Forecast: 54.0% | KR Forecast Cons: 53.8% | Prior: 54.0%

10:30 ET: EIA Crude Oil Inventories
For: 06/27 | Trading Impact: High | KR Forecast: NA | KR Forecast Cons: NA | Prior: -6.09M

Thursday, July 02
08:30 ET: Nonfarm Payrolls
For: Jun | Trading Impact: High | KR Forecast: 130K | KR Forecast Cons: 110K | Prior: 172K

08:30 ET: Nonfarm Private Payrolls
For: Jun | Trading Impact: High | KR Forecast: 98K | KR Forecast Cons: 88K | Prior: 120K

08:30 ET: Unemployment Rate
For: Jun | Trading Impact: High | KR Forecast: 4.3% | KR Forecast Cons: 4.3% | Prior: 4.3%

08:30 ET: Average Hourly Earnings
For: Jun | Trading Impact: High | KR Forecast: 0.3% | KR Forecast Cons: 0.3% | Prior: 0.3%

08:30 ET: Average Workweek
For: Jun | Trading Impact: High | KR Forecast: 34.3 | KR Forecast Cons: 34.3 | Prior: 34.3

08:30 ET: Initial Claims
For: 06/27 | Trading Impact: High | KR Forecast: 218K | KR Forecast Cons: 220K | Prior: 215K

08:30 ET: Continuing Claims
For: 06/20 | Trading Impact: High | KR Forecast: NA | KR Forecast Cons: NA | Prior: 1821K

10:00 ET: Factory Orders
For: May | Trading Impact: Low | KR Forecast: 2.0% | KR Forecast Cons: 1.5% | Prior: 4.8%

10:30 ET: EIA Natural Gas Inventories
For: 06/27 | Trading Impact: High | KR Forecast: NA | KR Forecast Cons: NA | Prior: +76 bcf

WaveTech Database