If this were NASA instead of the FOMC, we’d say they’ve screwed the pooch. The 10Y’s breakout suggests the Fed has lost control not only of the bond market but the entire narrative surrounding inflation. As we discussed last week [see: The 10Y’s Warning] this development will have significant repercussions for stocks.

Futures continue their slide, with CPI due out on Wednesday.Our downside targets remain in force.

continued for members…

The equity picture continues to look ugly.

As long as oil and gas continue to levitate higher, it’s going to be hard for CPI to put in a top.

The euro remains on the sidelines, while USJDPY continues its slide. This leaves DXY fairly flat, still coiling for its next pop higher.Gold and silver continue to falter.

And BTC is closing in on our 37,245 target.

Looking ahead to tomorrow’s CPI print… EIA reports a 50.5% YoY increase in gas prices for December. This is a substantial drop from November’s 62%, so it should help mitigate CPI. But, the bond market doesn’t believe it will be enough.

My gut tells me that the Fed is going with option B: count on a market correction to stop rates from continuing to increase. If this breakout holds and the 10Y makes it up to the channel top at, say, 2.6%, it’s fairly likely.  If the 10Y breaks out as the IH&S suggests, count on a big equity correction.

UPDATE: 10:00 AM

ES continues to slip, with a test of the white channel bottom at 4553ish coming up.

continuing…