With the election today and CPI coming out Thursday, things are bound to start getting a little more volatile again.
VIX can’t stay in this channel forever…
Don’t forget to vote!
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Category: Charts I’m Watching
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Waiting on CPI
More of the same…perhaps until CPI comes out on Thursday.
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NFP Beats, VIX Rules
Non-farm payrolls came in hotter than expected, a result that initially sent markets lower as it reinforces the Fed’s rate hike plans.
But of course…VIX.
So, instead of a selloff on news which is obviously bad for the market, futures spiked over 1.5% higher.
Think of all the market leaders which suffered massive declines after reporting horrid results or guidance, the 75 bps rate hike, Powell’s comments re the supposed Fed pivot — any of these events should have resulted in large declines. But, the algos have been able to protect the S&P 500 from any serious damage.
If you’re wondering how long this can go on, take a look at VIX’s 15-min chart. Ever since the SMA50 crossed above the SMA200 (a golden cross for VIX, ordinarily very bearish for stocks), it has been locked in a very precise falling channel – hence the market’s inability to react to bearish news.
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Fed: No Pivot Any Time Soon
The market rallied sharply off a small change in the FOMC comment which seemed to imply a more dovish course of action. But, Powell soon dispelled that notion – exactly as we suspected he would.
“It’s very premature to think about or talk about pausing our rate hikes.”
Things turned ugly from there.
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FOMC Day: Nov 2, 2022
The market is essentially unchanged from yesterday, with VIX in a position to make or break this rally unless the FOMC delivers a significant surprise.
We’ve seen this movie before: a sharp rally into a Fed meeting or CPI report that wipes out the put buyers and positions the market for a drop from a higher price level once the disappointing news is delivered.
There is widespread expectation of a 75 bps hike, but less agreement about whether the FOMC will be as dovish as the market’s latest rally would suggest.continued for members… (more…)
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Algos: Ready for FOMC
In yet another reminder of their sway over the markets, the algos have brought stocks to the brink of a breakout by putting VIX at the brink of another breakdown.
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Charts I’m Watching: Oct 31, 2022
Futures are off about 0.50% as we approach Wednesday’s FOMC decision and a slew of important economic data.
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No Pivot
September PCE held steady at 0.3% MoM and 6.2% YoY while personal spending came in hotter than expected. This should officially close the door on any speculation regarding a Fed pivot.
Coming after disappointing earnings and guidance from the largest, most important corporations, one might expect at least a slight decline in the markets. One would be wrong. Futures are back to flat as we approach the open because VIX-driven algos are still in charge and VIX has been driven lower.
VIX futures have been playing cat and mouse with their SMA200 since yesterday…
…and the index will join in shortly.
This pattern has been playing out daily since Oct 13, when VIX’s breakdown stopped stocks’ decline in their tracks.
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Q3 GDP Beats Estimates
Q3 GDP came in at 2.6%, beating the 2.3% consensus and of course Q2’s -0.6%. While good news for the economy, it does little to advance the narrative that the Fed might be ready to pare future rate hikes.
Nevertheless, VIX fell…
…so futures rose slightly on the news.
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This Round to the Algos
Despite some of the market heavyweights taking big hits from earnings/outlooks (Microsoft MSFT, -7.72%, Alphabet GOOG, -7.86%, Texas Instruments TXN, -6.41%) futures are off less than 1%.
Don’t look for a fundamental justification. This rally, like most this year, was built on VIX and currency manipulation.
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