With the 10Y completing an IH&S Pattern and gapping up to 1.845%, focus on the price of oil and gas. Bottom line, rates won’t decline until oil and gas do. And, if oil and gas decline sharply, the equity selloff will only accelerate. Decision time for the Fed.

Futures are down sharply. Our price targets remain unchanged.

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December retail sales disappointed, slumping 1.9% MoM and capping off a week of economic data which provided growing evidence of stagflation. The data were before nominal, meaning inflation-adjusted data were even worse. This is hardly surprising given that ever greater portions of Americans’ incomes are being consumed by rapidly rising prices.

Futures, which were already off sharply, legged down further on the news.

Our equity targets remain unchanged.

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If PPI is growing at 9.8% annually (a record high) while CPI is growing at 7% annually (a 39-year high), who’s eating the difference between what producers bring in and what they must pay out? Just a hypothetical, of course, as profits – like inflation – apparently aren’t that important. Futures are higher on the news.

Meanwhile, DXY is breaking down – which will add fuel to the inflationary fires.continued for members… (more…)

December headline CPI rose at 7.0% annually, its fastest rate since June 1982 when the 10Y yielded 14.44%.

The index for all items less food and energy rose at 5.5% annually, its largest increase since February 1991.  Both indices showed broad-based increases with almost all categories – most of which are sticky and not prone to declines – registering multiples of the Fed’s traditional 2% target.

Energy continues to lead the charge, though as expected, its YoY increase continues to ebb.

Algos, driven by the usual well-timed collapse in vol and a bump in oil/gas, are up moderately even after data that does nothing to alter the Fed’s taper and rate hike plans.

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The broader markets reversed sharply yesterday as soon as COMP reached our downside target – just below its 200-day moving average. Yet, the futures are having trouble moving back above their 50-day. Long a source of support, it is now overhead resistance. Tighten your seat belts.

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In a world of overpriced equities, the NASDAQ Composite has stood head and shoulders above the other indices.  It rallied 244% from its March 2020 lows, finally topping in November 2021 before running out of steam. Note that it hasn’t tagged its 200-DMA since April 21, 2020.

This morning, it tagged our 14,575 target [see: Jan 6 COMP Update], an ignominious drop of 10.4% so far.As I wrote last week, the bulls had better hope it holds.

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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.

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