It’s the first press conference with new Fed Chairman Kevin Warsh. What probably seemed like a cush job when he was first in the running — lower interest rates substantially by the November mid-terms – has become decidedly more complicated. Inflation is high, but probably coming down…if the 40th end of the Iran really sticks. And, the economy is humming along…at least according to those responsible for publishing government statistics. Clearly you can’t lower rates at this time – stuck real estate industry be damned.

Maybe it’s time to raise rates. There’s absolutely nothing in the real economy that points to restrictive interest rate policy. But, do you raise rates when the impetus for high inflation was man-made, an unforced error?  And, one that could conceivably be reversed easily enough? And, do we even care about the largest divergence in history between those doing just fine and those who are struggling? It’s always led to a rate cut before…

Whatever your expectations of Kevin Warsh, just know that he and his colleagues have few good options. So, they should stand pat and hope (hope as a strategy?) that the market keeps melting up,  The countdown to Trump’s first critical social media post begins.

The SMA200 is a good bounce spot, especially at the bottom of this channel… Hearing that Trump is already walking back how complete the MOU with Iran is…

continuing…

It’s not entirely clear what the terms are, and much is still to be negotiated. But, for now, the algos seem to believe Trump.

CL is off over 5% and is testing the Apr 17 lows.

The bond market and currency markets, however, are little changed.

As we count down the ginormous SpaceX IPO and the annointing of the world’s first trillionaire, it makes sense to remember that the divergence between the haves and the have-nots has never been greater. It’s a disparity made worse by high inflation that hurts the have-nots more than anybody. The inflation is evident in everything from gas prices to cars, electric bills, insurance rates, and hamburgers.

The Fed certainly knows it. The only question is whether they will preside over a worsening of this condition, knowing what it means to the underpinning of the economy, or try to do something about it.

While VX futures are safely below their SMA200…

…VIX itself is not. In fact, it just bounced off its SMA200 and the top of the purple channel from Jan 2022.

Meanwhile, CL is lower on what is probably the 43th end of the war on Iran. Trump has again announced that a deal had been reached and is only subject to the final paperwork being signed. Right. The timing of the announcement had nothing to do with the fact that the market was falling sharply. Really. CL very nearly tagged its .886 retracement, so we should find out soon whether this time is any different.

Meanwhile, bonds are taking it as gospel and are back below the TL from Feb 27.

Stay tuned…

ES bounced about 1/2% overnight after tagging its SMA50 overnight. Then, we got a PPI print that confirmed what we already knew: we have an inflation problem. YoY was a whopping 6.5%. MoM came in at 1.1% versus 0.7% expectations.

Remember, it all started with an unforced error: Trump’s war on Iran, which sent oil and gas prices soaring.

May headline CPI rose 4.2% YoY and 0.5% MoM, in line with our expectations and consensus. The YoY print was the highest since Apr 2023 and well above this past April’s 3.8%.

Futures, which tagged our next downside target yesterday, erased a bit of their overnight losses.

But, it’s the bond market’s reaction we’ll be closely watching today. Note that the 2s10s tagged our downside target from last December. A further drop would almost guarantee more pain for stocks., with ES eyeing 7077.  A steepening would at least postpone the pain.

We could say the same for VIX and VX – both of which broke out yesterday but thought better of it.

SPX backtested the yellow channel top, but like the ES never made it down to its SMA50 – a lapse by the men behind the curtain.

DXY paused prematurely, suggesting that stocks aren’t done correcting.

Tell me what “brilliant” move Trump will make next, and I’ll tell you what to expect from oil. But, for now at least, the bond guys are nervous. And, when they get nervous, stock investors start looking for the exits.

Keep an eye on the 2s10s. ES has formed a H&S pattern that almost exactly targets our next downside target: a backtest of the former high at 7077.50. The chart suggests as soon as tomorrow, but in any case by Jun 15.

We get PPI tomorrow, UMich sentiment on Friday, housing starts next Tuesday and, of course, the FOMC meeting next Wednesday.  This wouldn’t be the first time “the market” threw a fit in order to extort encourage the FOMC into doing the right thing.

Stay tuned…

A lower high to go with the first stage of the rebound…inspired by lower VIX and CL.

Oil is about 3% lower despite such little meat on the negotiation bones…

…which has had a very small impact on the 10Y.

Nothing that looked scary on Friday has been fixed. So, the odds are that this morning’s rebound is just a pause. But, of course, the administration is out there with the usual pre-opening declaration of the war being over, the Strait being opened, Iran buckling, and gas prices to soon crash.  So, it will be like almost every other Monday — whether the “fool me twice” proverb can hold.

It’s a delightful bit of pop culture that never gets old. And, it’s so very, very applicable to investing. Looking at the market’s ascent to last week’s highs, it’s obvious that investors can be fooled again.

But, it’s the algos that are really easy to fool. Check out VIX’s 13% plunge…

…and CL’s (always) coincidental plunge just prior to the stock market opening.

These are patterns that repeat over and over, fooling the algos as well as most carbon-based market observers. It doesn’t mean the market should plummet by 50% tomorrow. But, where is the recognition that inflation is rising while U-6 has been rising for over three years?

Meanwhile, interest rates pushed back above the trend line from Feb 27 and the purple channel top. It would be very concerning if the 10Y can’t remain below 4.5%.

GLTA

When you exaggerate the strength of the job market, as this administration consistently does, you make people nervous about the possibility of a Fed hike rather than the cuts that bulls have been promising for years. This morning’s 172,000 print is having that effect, at least so far.

I don’t really expect a hike unless Trump continues to fumble the war on Iran and oil prices remain north of $90. In fact, the  market is executing a hike for the Fed at the moment (note the 5/22 gap close)…

…and of course it’s spilling over into the currency markets…

…even without an increase in oil and gas prices.

Last, I would be remiss to not mention NVDA. At 10% of the NDX, it’s an unmistakable bellweather. It still owes us a backtest of 153.

This decline clearly has the potential to accelerate.

Stay tuned…

If you’re going to manipulate stocks, you push them up past resistance, then (and, this is key) backtest that former resistance. It’s a way of declaring that the resistance is well and truly done, that it didn’t pose a problem before and it certainly won’t pose one now.

Such is the case with ES, which pushed up past its 1.618 Fib extension at 7525 after a very mild 2.5% stumble upon first reaching it two weeks ago.

It came back and topped the 1.618 with ease (and help from the algos) seven sessions later. Last night, it executed a picture perfect backtest.

At the moment, it’s bumping up against its SMA10. And, it would surprise no one if it pushed past it, especially on a day when DJIA is up over 500 points. But, there are a few concerning issues, not the least of which is AMZN – a bellweather of the US economy if there ever was one.

It pushed past its 1.618 in late April, then cleanly backtested it on May 19 and again on 6/2 – just in case the bears weren’t paying attention. It was a strong message. But, then something strange happened: it failed, closing 2.5% lower yesterday. Granted, it tagged the normally supportive SMA50 and is 1.2% higher this morning. But, it hasn’t pushed back above the 1.618.  Hard to know what to expect next. But, for now, it’s one of those things worth keeping an eye on.

Meanwhile, SPX is well above its 1.618, meaning it would take a 100+ point drop to backtest the former resistance.

But, VX has spent the past 5 sessions only a whisper from breaking below its .886 retracement. So, the lever is there, ready to be used if things get ugly.

Which, of course, takes us to Iran. The headlines are not great at the moment, but WTI is selling off anyway.

This allows the 10Y to retreat from yesterday’s pop above TL resistance to test the SMA10 and SMA20.

One of my favorite analysts, Jim Paulsen, wrote an interesting piece the other day in his substack PaulsenPerspectives about the positive correlation between oil price spikes and market tops. Spoiler alert: there is one. Check it out HERE.

Stay tuned…