Stocks were not thrilled with Powell’s somewhat hawkish testimony yesterday. Bottom line, he didn’t do much to inspire confidence that tightening would be limited to three rate hikes.
The killer line came, however, when he admitted that the US is not on a sustainable fiscal path. It was, perhaps, the least surprising comment he might ever utter during his tenure. But, the algos were not amused that he said it out loud.
This sent note yields spiking higher…
…which sent stock prices tumbling lower. Fortunately for the bulls, SPX’s slide landed it right at important support. It will be very easy to measure whether or not the bounce has run its course for now.
Keep an eye on TNX and VIX today, as they should both provide clear signals.
continued for members…
The key for SPX is obviously the white midline. Just below it, the .618 at 2742.92. A drop through either would open up a path back to 2703, the SMA100 or the white channel bottom at 2660ish.
ES also has support at its midline and a .618 Fib.
Though, the 5-min chart shows a breakdown and backtest of the purple midline. It will need to push through 2759 in order to have a shot at new interim highs. Otherwise, yesterday was it and we’ll see more downside over the next week or so.
VIX will be instrumental. On the hourly chart, we can see an opportunity to break trend and drive stocks higher. Conversely, a push through 18 suggests 24-34.
On the daily chart, VIX bounced about where it should have and looks like it’s about to spike higher.
Bottom line, if VIX breaks above 18, we won’t get new highs today. If ES drops through the white midline, it has support at the .618 (2744.99) which it has already backtested.
After that, it has the SMA50 at 2737.37, the SMA10 at 2732.68, and the 2.24 at 2728.79. That’s a lot of support. If it were to fall through all of those, it would be fairly bearish in the medium term and we’d consider yesterday’s highs the Day 12 peak.
UPDATE: 10:58 AM
This is not a great development for ES/SPX. SPX notched slightly lower than yesterday, coming very close to a backtest of its .618. At the same time, ES is having trouble staying above the red TL and VIX just turned positive on the day, threatening yesterday’s highs. Traders, watch your stops. If SPX drops through its .618, will be trouble.
UPDATE: 12:15 PM
Moment of truth all around. VIX says lower from here. ES/SPX are hanging in there, so far, but on backtests. Need to move back above midlines if there’s more upside to come. If not, this is the last gasp before moving lower.
