Futures are mixed on the eve of an FOMC meeting where a rate hike is a 35% possibility and a 10% one-day plunge in the Korean chip-heavy KOSPI index is a 100% certainty.

We’re coming into a big week of tech earnings, but the algos are focused on the decline in oil prices occasioned by two days of relative quiet in Iran.

 

continuing…

Yesterday’s ugly session was exactly what the bears needed to keep this correction going. Though futures are flat this morning, the road ahead will be increasingly fraught.

Now that CL has officially completed its flag pattern, we have to acknowledge the possibility of it reaching 130.50 as soon as early August.

This morning’s post will be cut short due to travel demands. All targets remain in force.

GLTA

We get tired of writing it, and the Street is apparently tired of hearing it. By “it”, we’re talking about economic data which is beyond belief. This morning, it means initial jobless claims supposedly dropping to 187k, the lowest since September 1969.

The skeptics and the hawks agree – this is not good for equities.

Combine it with sharply higher oil and gas prices…

…it’s no surprise that the 10Y has pushed to new highs, topping our 4.698 target and approaching our 4.755 target.

Don’t look now, but DXY is approaching new highs.

Futures are off modestly after yesterday’s VIX-driven splurge and ahead of tomorrow’s claims data.

This morning looks a lot like yesterday morning. Futures are higher, but off their overnight highs.

Getting a little bounce back this morning after Friday’s bloodbath.

It has been fueled by algos driven by VIX’s reversal at its SMA200.

Note that VX’s breakout is still intact. Just a backtest so far…

USDJPY is helping out.

And EURUSD is keeping DXY from rising too much.

Things are still getting messier in the Middle East, with talk of additional countries being pulled into the war.

Bonus charts:

Futures are off sharply as the rising wedge finally breaks down, signalling at least a 7.5% decline by mid-August. Recall, this is the point at which its SMA200 will its January highs.

SPX’s backtest target is more like 8.1% from its all-time highs.

While VIX is pressing up against overhead resistance…

…VX has already broken out.

Much will depend on DXY’s ability to finally break out…

…and the 2s10s’ ability to break back above 0.42……which basically means that 2Y yields fall faster than 10Y yields — a likely scenario given the ongoing inflation problems.

It would help if Trump could bring himself to disengage from his war on Iran. But, he seems much more focused on engineering a midterm win — which is even more unlikely given the inflation that his Iran War is generating.

My research shows an average August return since 2000 of about 0.4% – essentially flat – with a range of -6.4% (2001) to +7.0% (2020.) The average drop from the summer highs to the August lows, however, is about 6%.

But, August is rarely the low point in these selloffs. Seasonal weakness historically bottoms in late September/October. So, an August low is often undercut a few weeks later.

Stay frosty.

The good news is that the Philly Fed Index hit new highs for June. The bad news is that the Philly Fed Index hit new highs for June. Not only is a 41 handle hawkish from an FOMC standpoint, but peaks in the index almost always coincide with corrections – which is exactly what we’re expecting. From the excellent Trading Economics:

Then there’s the part of the index that contradicts the recent official inflation data. Recall that CPI and PPI came in well below expectations – no reason to worry about inflation or consider raising rates. Survey participants didn’t see things that way. It’s hard to imagine a 0.4% MoM decrease in prices if 0.0% of survey participants saw price decreases.

We had a brief downturn overnight which has been halved by a retreat by VIX back below its SMA10 — as we discussed yesterday, the input the algos are watching at present.

We’ll continue posting after a couple of conference calls.

Stay tuned…

The bond market is once again saying the quiet part out loud. Both the 2Y and the 10Y were bumping up against trend lines which posed breakout risk when both CPI and PPI both posted inflation data that was well below expectations – in fact, the lowest since the depths of the COVID crisis.

Remember, these prints come from the Bureau of Labor Statistics – the very same organization that used to be run by Erika McEntarfer, who was fired by Trump when the BLS released employment data that wasn’t favorable to him. He posted that she was incompetent and unqualified and that the data was manipulated.

Important numbers like this must be fair and accurate, they can’t be manipulated for political purposes.

I couldn’t agree more. The market tanked, as investors everywhere wondered what it meant now that we couldn’t trust the BLS to operate independently of politics.

Now we know. The 10Y has recently broken out, thanks largely to Trump being outplayed by the Iranians, but hasn’t yet popped above the TL from Oct 2023. It would undoubtedly be much lower if Trump hadn’t started the war in the first place. But, here we are.

Algos are less impressed than they were yesterday, perhaps due to the latest attacks by both Iran and the US which have left CL and RB pushing new highs.

The 10Y has retreated somewhat, leaving the 2s10s backtesting the TL from Sep 2023.

Futures are up modestly.

VIX’s dip back below its SMA10 is all it would take for the bulls to keep the momentum going.

And, the DXY is continuing to trend sideways, for now at least.

SPX/ES are both at a point where it would be quite easy to break out. But, at the same time, the SMA200 is coming up on the previous high – an enticing target if a backtest will be allowed. There are plenty of available catalysts – both real and fabricated – in either case.

GLTA