With yesterday’s VIX algo-driven eruption in the rear view and this morning’s disappointing jobs report in hand, all attention now turns to the Fed. Will they or won’t they cut rates? And, if they do, will it top 25 bps?
Consensus still seems to be for a 25 bps cut. But, Powell will be pressed later today for his thoughts on the matter. So, get ready for some volatility – especially if he disappoints the market. At least that’s what our analog says to expect.
SPX reached our secondary target yesterday and, so far, the futures seem content with this morning’s highs.
continued for members…
The outlook for ES and SPX:
Much will depend on VIX’s ability to refrain from reentering the red channel from which it broke out on Aug 1 and has backtested many times. It has the SMA50, 100 and 200 all just above — so a move up past 16.97 will really knock the algos for a loop.
CL, RB and USDJPY have all reversed at good resistance and appear ready to take the plunge.
Note that ZN reached our interim downside target overnight. I will be optimizing this chart to reflect the timing of our analog later this morning.
UPDATE: 12:45 PM
Powell is speaking now.
https://www.cnbc.com/2019/09/06/watch-fed-chairman-jerome-powells-qa-in-zurich-live.html
UPDATE: 3:40 PM
The commentary on Powell reported that he gave a “whatever it takes” kind of speech. What stood out to me was that he thought the economy was doing fine and he didn’t expect a recession. To me, he came off slightly hawkish.
These are the markets that try men’s souls. Every time stocks tick lower, VIX drops just a little further. As much as I love analogs, this is the not so fun part — when you position for a big dropoff — maybe over a weekend — and then have to endure the drip, drip, drip water torture of a market that’s being propped out while insiders position themselves.
If it can reach 2974 at the close, ES would be on track to follow the A-B-C, A=C path.
Bottom line, I’m still expecting a sharp sell off — though I admit it’s no fun sitting short all weekend after a day like today. If things go according to plan, Sep 11 and Sep 13 are the likely suspects and ES 2762 and 2734 and SPX 2780 and 2794 are very appealing targets.
Comments
One response to “Next Steps”
There is a huge reason 2800-2820 is so important and needs to be defended for the bulls. If the market falls below that level, then it will confirm many composite indicators of recession. These are things like credit spreads, employment growth, yield curve, and PMI that are all pointing to recession. The S&P is the only holdout.
The problem is the *everything bubble* makes stocks look cheap, and psychological reflexes dictate daily noise in the markets.
I would be more uncomfortable being short if market stays strong after Tuesday of next week. New highs probably targets 3060-3400…this would be euphoria!
The move last 2 days could still be a false break higher of the consolidation zone.
The big question I’d love to answer is this: to what extent is a trade deal possible and even if it gets signed, then to what extent does that add to economic growth?
My guess is that it would actually be real growth and might support the markets. However, the markets should be able to discount whether or not a deal is going to happen. It certainly seems a market 7% lower from here would create a much better environment to strike a deal. Or does it?
If I were Trump, (and I’m not), then I’d want a big decline in the markets to happen now, and then run on the coattails of a rebound into election.
What I think the central planners in China are thinking is this: NO DEAL until election. If economy is tanking in US et al, then both TRUMP and/or the democrat needs to solve this badly, making it a better deal for China long-term.
And, I could be totally wrong!
I have small put option at 2820 that will be worth a lot if next 10 days confirm all the risks that are out there.
Until then, I’ll enjoy some micro-brews here in Traverse City, MI.
Corey