The Fed has traditionally used higher interest rates to put a lid on inflation which, unless oil and gas promptly reverse their moonshot, will soon reach 2.5-3%. Yet the unflappable Mr. Powell insists that the Fed isn’t concerned and has no intention of raising rates any time soon.

So, what does it mean that the very concerned market is doing it for him, even as he speaks? Does that not count?

The morning-after talking heads have reminded us that rates were much higher than 1.5% in past years.  True, it was over 5% in 2007. But national debt was only $9 trillion. Might it matter that debt has more than tripled since then?

The concern, of course, isn’t the notion of paying slightly higher interest rates on $2-300 billion in issuance over a transitory period of higher inflation. The concern is that inflationary pressures in addition to spiking oil/gas prices are building and that the Fed might have painted themselves into a corner.

Is Mr. Powell simply unflappable or are he and his colleagues possibly blind to the mounting risks?

 * * *

ES tagged our next downside target yesterday. It was two days ahead of schedule, but it counts all the same. Now the bounce, aided of course by VIX’s ubiquitous 18% smash-and-grab and 200-DMA backtest. continued for members…

As yesterday, VIX’s SMA200 will determine next steps. Right now, VIX is backtesting it. If it drops below it, the bounce will be extended into the close. If it doesn’t, the bounce could well run peter out quickly.At this point, I’m looking for both the falling channels and the rising channels to expand. As we discussed yesterday, a small H&S pattern is being set up by this bounce. It targets 2488, which should be about where the SMA200 is in a few days.

This would be a breakdown of the expanded red channel, so I wouldn’t be surprised to see the rising red channel replaced…

…by the rising purple channel seen below. It the drop were to wait a few sessions, they might even be able to limit it to the .618 at 3507. This, in turn, would set up a drop to the .786 or .886. We can expand the channel further, as illustrated by the yellow channel below, and it opens up some interesting possibilities. Note that I’ve colored in some of the downside targets and shifting the timing to take into account the yellow channel lines. Currencies have done pretty much what we expected, with USDJPY tagging and ultimately reversing at its .618… …and EURUSD sliding towards our SMA200 target.The additional downside it has ahead of it should allow DXY to reach the red TL backtest target at 92.77ish.UPDATE:  3:43PM

ES has rebounded to a whopping 2% gain on the day……mostly on VIX’s now 23.5% drop from yesterday’s highs.

Both ES and SPX are backtesting their SMA10s – though it wouldn’t surprise me to see them rise above by the close. I wanted to point out that SI has reached its next downside target yesterday and GC is very near its. If GC’s rising purple channel bottom should fail, GC could easily tumble to 1380 to backtest the IH&S neckline which was never backtested since its breakout in 2018. Note that GC’s RSI has broken to new lows and is oversold. While SI has broken below the latest RSI TL… …it has reached a longer term one. If this one breaks down, then the SMA200 will certainly get a test and could potential break down as well.Remember, the key to GC has been the price action of ZN. And, lately, ZN has been sucking wind…

…as rates continue to threaten a breakout.

GLTA.