At 4.6%, November’s unemployment reached the highest level in 4 years while CPI has been locked in the same 2.4 – 3.0% range for 2 1/2 years. Had it not been for plunging oil and gas prices, it would also be at 4-yr highs.

“Inflationary slowdown” doesn’t exactly roll off the tongue. So, let’s call it what it is: stagflation. Will the stock market ever start to reflect the slowdown, or will it be content to bounce at the 50-day moving average again?

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SPX and ES have yet to make new highs, and still owe us a backtest.

Meanwhile, VIX is breaking out of the falling purple channel yet again.

Were it not for the falling DXY, we’d see a much bigger reaction in equities.

Oil and gas continue to wield dramatic influence on markets, with RB dipping back into the giant white channel while the 10Y remains stubbornly elevated.

CL has done the same, though it has Fibonacci support just below current levels at 53.87.

There have been many dips below the yellow channel top over the past several years.They typically don’t last very long. But, this time could be different as supply/demand is a secondary consideration.

We have long expected Trump’s OPEC+ and big oil pals to help with inflation by suppressing oil prices. But, at what point will they say enough is enough? Prices are below the level where it’s profitable to pump any new shale oil – a bonus for OPEC+ producers if they can discourage US production. But, Trump is doing all in his power to encourage US production.

One thing is clear: keeping CPI in the 3% range means oil & gas prices must remain at or below current levels – particularly as the effects of tariffs are increasing.

And, there’s a lot riding on CPI remaining below 3%, including the 2s10s which is pushing 3 1/2 year highs.

Stay tuned.

The Empire State Manufacturing Index came in at a dismal -3.9 versus expectations of +12.5 and prior +18.7. In traditional “bad news is good news” fashion, futures are up nicely…

…but have a lot of work to do to top recent highs.

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Bears are right to be concerned, however, as we’ve seen two H&S patterns busted and the continuation of a significant VIX smackdown.

The DXY continues to break down, courtesy of the euro. EURUSD has ignored the arrival of the SMA200 at its recent lows and has resumed its ascent toward our longstanding 1.2028 target.

CL and RB are awfully close to breaking down…

…which has done little to prevent the rise of the 10Y…

…of the steepening of the 2s10s. Of all the charts we watch, this is the more problematic for equities.  Our 10Y cycle chart suggests big drops in the 10Y in the next couple of months. This could be driven by many things: a collapse in oil/gas prices, the tariffs being struck down, an equity crash, etc. If the  2s10s reverses by 85 bps, the damage would be minor. Anything north of that, however, would likely unleash a significant downturn.

Stay tuned.

Futures are slightly lower as investors look forward to a slew of earnings announcements. This will be the 4th day that ES tests its .886 Fibonacci retracement.

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VIX continues to drive the bulk of the upside, nearing the Sep 2025 and Dec 2024 lows since breaking down in late Nov.

The other algo driver is the faltering DXY, with most of its weakness courtesy of the euro. Interestingly, the dollar’s weakness is in contrast with a resurgence in the 10Y…

…which is occurring despite continuing suppression of CL and RB.

But, the biggest risk to equities is still a steepening yield curve. At 62 bps, it’s sending a warning signal.  At anything north of, 67 bps, the year-end algo led rally could fizzle very quickly.

Stay tuned…

While the official vote tally included only three dissents (two who opposed any rate cuts and Trump’s sock puppet Stephen Miran) the dot plot illustrates a much greater degree of dissent. Six showed no interest in pushing through the additional rate cut the market is pricing in.

It was this realization that sent ES 92 points lower overnight. But, it was the QE (not so subtly renamed) of $40 billion/month which allowed stocks to recover much of those losses.

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Note that the initial spurt allowed ES to tag the .886 again. However, it also enabled ES to regain its 10-day moving average.

SPXSPX, on the other hand, came quite close to a double top and to the purple 1.618 extension it just missed on Oct 29.

COMP continues to look shaky, with a 16% slump still in the cards.

Keep an eye on the bond market however. The 10Y has gapped back down to its SMA20 and the 2s10s is pushing 60 bps. Would we really need half a trillion dollars in additional liquidity to provide adequate liquidity to a healthy bond market?

Stay tuned…

Once again, the global economy is in the hands of the 12 members of the FOMC who are arguably more divided in their thinking than at any time in the past 30 years. The problem is stagflation, The solution is elusive.

The market has pinned its hopes on a return to easier money, which will most certainly stoke higher inflation. The cure to inflation, however, is higher interest rates which usually means a recession.

While betting markets expect a rate cut, it’s hard to see how one would make much difference to the real economy. Consider the latest ADP employment data, where small businesses (under 50 employees) lost 120,000 jobs while larger ones gained 90,000 jobs.

How many of those smaller employers which were under so much pressure that they laid people off would, instead, hire additional employees if interest rates fell by 0.25%? Exactly.

Meanwhile, the market is flat at less than 1% below all-time highs.

continued for members…

Stay tuned…

Futures are flat ahead of today’s important initial claims data and tomorrow’s PCE print. These will be among the most important data for the FOMC’s rate decision next week.

If the Fed is looking for weak jobs data, this morning’s print will be the last best chance to justify a rate cut.

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Currencies are still on track to go nowhere, with EURUSD’s SMA200 tag coming up… …and DXY still undecided.But, keep an eye on SI, which is coming up on our 60.20 target – important Fib resistance – while GC is still having trouble breaking above 4223.

Big downturns in December are very unusual. But, there’s a lot riding on the Fed’s upcoming rate decision.

I will be on the road tomorrow and early next week. So, I’ll only post if something unexpected occurs.

GLTA

Futures are up modestly after mixed economic data further muddles the rate cut picture.

ADP reported that 32,000 jobs disappeared (versus est +10,000) in November. But, the losses were much worse for small businesses which lost 120,000 jobs (the largest one-month decline since May 2020) compared to a gain of 90,000 jobs at large employers (those with over 50 employees.)

The rest of the data was mixed, with some prints arguing for a rate cut and others against one. That’s the story of this market, right?  At least to hear the administration tell it. The economy is doing great thanks to the administration’s masterful trade policies and the big beautiful bill. But, it’s doing so poorly that we desperately need a rate cut.

Never mind that a 25 bps rate cut wouldn’t do anything stop the bleeding at the smaller companies who would never see any savings from a cut nor at the larger companies which already enjoy low rates. Not would it stimulate the economy other than to inject additional capital into an already frothy equity market.

What the economy really needs is an actual breather, not a 3-week, 5% slump like we just saw but one which can reset financial conditions and reduce inflation and asset prices back to trend.

continued for members…

We’ll come back to the economic data after looking at some charts.

Stocks remain on the brink of a breakout, meaning also that the rebound might have run its course.

Closing the gap at 6776.4 looks like a gimme, but it should concern bears that a 10/20 cross is imminent. VIX’s bearish tea leaves depend on its RSI holding recent lows.  At this point, there’s enough reason to believe it will – contributing to a risk off picture.

VX offers bears less hope as it makes lower lows.

Currencies continue to waffle, with DXY – currently my favorite canary – again testing its SMA50 while USDJPY fails to rebound off its backtest. If it breaks down, it’s going to be very difficult for equities to break out. The 10Y is testing support yet again.But, the bigger concern for bulls remains the risk of the 2s10s breaking out. It’s currently pushing 58 bps again.

continuing…

Futures are moderately higher following yesterday’s failed attempt to notch higher highs.

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The falling white channel is still susceptible to a breakout, particularly in the lead up to an FOMC decision – not to mention the usually bullish year-end gallop to the barn.

Note that the 1.272 extension of the recent pullback is right on top of the 3.618 extension of the 2020-2023 correction (though the SMA200 is sneaking up on the December 2024 highs.)

Currencies continue where they left off yesterday, with USDJPY getting a slight bounce off yesterday’s backtest. DXY is flat.

Futures are off by about 0.60% as December gets under way.

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The strong month-end rally opens up the possibility of a breadth thrust.

But, SPX’s RSI will need to reverse first.

VIX and VX are again at cross purposes, with VIX back to broken out status.As we’ve discussed many times, Japan is facing very problematic inflation which, in turn, could unravel the very beneficial yen carry trade. The devaluation of the yen was predictable, with USDJPY rallying from 139 in April to 158 about a week ago.

Ueda’s comments last night suggest the BoJ is considering a rate hike in the Dec 18-19 meeting which, of course, strengthened the yen nicely.

The EURUSD has been less predictable. The pullback to the SMA200 at the intersection of the channel midline never materialized but, instead, has yielded a well-managed shuffle  which is patiently awaiting the arrival of the rising SMA200.

The DXY is following suit – breaking back below its SMA200 after the brief breakout. Keep an eye on 98.97 as we approach the FOMC decision on Dec 10.

There’s no question that Trump will select a very dovish Fed chair to replace Powell. NEC director Kevin Hassett is all but certain to get the nod – which might result in some of the FOMC members who don’t get the nod acting a little more responsibly with respect to US inflation.

CL and RB are both seemingly chomping at the bit, no doubt being suppressed by our Saudi friends in order to facilitate Trump’s agenda. It comes with a hefty price tag: America’s self respect. The fealty shown to MBS during his recent state visit was beyond the pale.

Meanwhile, the 10yr jumped back above the large white channel midline, suggesting that the momentary dip below 4% might have been a headfake. The charts still suggest a drop to as low as 3.25% in the next few months, particularly if equities hit the wall.

GLTA

Futures are modestly higher despite VIX being crushed by a ridiculous 8%. It’s gotten to the point where there’s not even any effort to mask the obvious manipulation.

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We have to go to the VX futures to see the true state of affairs – a backtest of the large falling purple channel from Jan 2022. This isn’t to say that the channel won’t be violated again, like it was starting on May 12.

Members will recall that Monday, May 12 was the day that Scott Bessent went on CNBC (before the open, of course) to surprise markets with the news that tariffs on China would be slashed from 125% to 10%.

VIX plunged 17% (back below its 200-day moving average of course) and SPX soared 3.25%, gapping back above its 200-day moving average. This followed the FOMC decision on May 7 not to cut interest rates. It should come as no surprise that the meeting with the Chinese was announced on (drumroll please) May 7 as SPX was pulling back from its .618 Fibonacci level.

We’ll be doing a little site maintenance over the next few days, but this situation was too absurd not to mention.

Wishing everyone a wonderful Thanksgiving holiday!