Higher interest rates and inflation, but falling retail sales? Not a great combination for equities. In fact, it feeds right into our base case of stagflation.
Not even the venerable VIX gimmick was able to paper over the implications.
Back on May 3 [see: Decision Time] we identified the 15-16th as a potential new low. The next day, of course, the massive VIX dump sent stocks scurrying higher. Though we had a nice bounce, ES and SPX reversed course, yesterday, at the lines in the sand we had drawn for them — meaning, the downside case is still in play.
The key, of course, will be whether the damage can be limited to SPX 2703.62. A bounce there at the 2.24 Fib extension would suit bulls just fine. A drop through it would expose stocks to new lows.
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