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.

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…

As we settle into the 4th month of the Iran War, note that WTI has risen 11% since last Friday.

It’s finally having an impact on stocks and interest rates.

VX held the line – at least so far – at its .886 retracement, though VIX itself is still in the basement.

Perhaps the most significant chart this morning is the 10Y. It had broken down, which was significant.

But, CL’s ascent has driven it back above the TL from the Feb 27 lows. If it can hold at the confluence of the SMA10 and SMA20 at 4.50%, all is well. If it remains above that level, it would be very concerning.

continuing…

Per a phone call with CNBC’s Eoman Javers re negotiations with Iran, Trump stated: “I don’t care if they’re over, honestly…I really don’t care. I couldn’t care less” adding that he thought the protracted negotiations “started to get very boring.”

Iran says the on-again, off-again ceasefire with the US is off again. And, Israel has expanded its incursion into Lebanon. The combined headlines quickly derailed the overnight ramp job.

At about 5%, May of 2026 would be the 5th biggest May in the last 50 years. The eight-week rally is one of the most explosive in the last 75 years. Big Mays are typically followed by positive Junes – bucking the “sell in May, go away” credo.

It’s tough to get comfortable with that stance, however, given the softening consumer dynamics due to rising inflation from Trump’s war on Iran. But, SPX is nearing 7600, which was the year-end target for many Wall Street firms.

Much will depend on whether or not VIX and VX can make new lows.

And, it would really help if the 10Y can break down in the wake of continuing WTI declines.

When PCE (like CPI and PPI) runs hot but GDP does not. and real disposable income is the lowest since 2022, it’s a pretty good sign of stagflation.  From our friends at Briefing.com:

But…AI!  So, the market is relatively flat, and keeps bouncing back no matter what the economy throws at it.

VIX and VX are still working to keep stocks afloat. No signs yet of a bounce.

WTI is up a few percent as the latest “the war is over” proclamations are tossed in the bin.

And, that’s putting pressure on the 10Y, which closed the gap at 4.5 and is nudging the TL from Feb. If it weren’t for the RSI breaking down and an very interventionist administration, I’d be certain of a bounce here. But, those aren’t the cards we’ve been dealt.