Given stocks’ reaction to the bond market’s reaction to the PPI beat, it’s not surprising that the 2s10s has scurried back to the relative safety of 52 bps. 
But, TNX has still broken out, and the market is justifiably nervous about the implications of higher rates. 
CPI comes out at 8:30. And, for the first time in a while, folks might actually pay attention to the Treasury budget numbers at 2:00.
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COMP: the index that thinks it’s a beanstalk. It’s heavily weighted toward stocks which have done particularly well in the face of the global pandemic: AAPL, MSFT, AMZN, FB and GOOGL. So, a reversal at current levels would be a big deal.
Investors might wish to know, then, that it just bumped up against a chart feature that suggests a reversal.
COMP did a pretty good job of paying attention to channels over the years — at least until 2018. As we noted in our March 2018 update {see: Update on COMP], it had just arrived at our 7619.21 target – the top of a long-term channel and an important Fibonacci extension level. Our comments at the time:
…with a FOMC rate hike due out tomorrow and more on the way, the range of possible outcomes is broad — from new highs to the next lower Fib level at 6227.06.
It reversed as forecast, but pushed back above 7619 in June. The breakout was strong enough, but it fell back below 7619 in October, tagged our 6227 target, then spent almost a year trying to break out once and for all.
By February 2020, it had popped nearly 30% above 7619. Then came the pandemic. The 33% plunge caught many true believers by surprise – though there were plenty of warning signs in both the index and its major components.
The recovery was even more spectacular, with COMP gaining 68% since March 23. Given the amount of money that’s been thrown at the market, investors could be forgiven for believing the rally has plenty of room to go.
The charts suggest otherwise.
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PPI was expected to tick 0.3% (0.1% core) higher in July. Instead, headline PPI soared 0.6% and core popped a stunning 0.5% – the highest since October 2018.
The impact on stocks has been muted so far, as the market is still giddy over the potential release of what is essentially a Phase 1 vaccine out of Russia. The impact on bonds, however, has been significant. 10Y yields have broken out of a long, slow decline.
When you’re piling on debt (with record-setting duration) the way the US is, higher interest rates are not good news.
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In our last update on currencies [see: Currencies, a Turning Point] we noted that DXY was in danger of breaking down as EURUSD was approaching strong overhead resistance. Since then, DXY’s rising purple channel dating back to 2010 did, in fact, break down… 
…at the same time that EURUSD reached our upside target at 1.19. 
USDJPY, which by now would normally have cratered, is stuck in a holding pattern in an attempt to hold NKD above its 200-DMA. 
With real bond yields negative and nominal yields barely does the US dollar have more downside? And, what are the implications for equities?
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NFP increased by 1.76 million in July, beating estimates of 1.48 million. Futures popped on the news, almost turning green before deciding it was a non-factor – perhaps as Trump had already spilled the beans earlier in the week. Or, perhaps it was due to most of the job gains coming in food service and retail – categories which are susceptible to large downturns if slowdowns and shutdowns continue to make a comeback.
The unemployment rate dropped from 11.1% in June to 10.2% in July, while U6 dropped to 16.5% – still a stunningly large number of unemployed Americans whose benefits have plunged in the past week.
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At 1.186 million, initial claims came in well below estimates of 1.46 million. Futures rallied on the news, but are still slightly in the red after breaking below trend overnight.
All eyes are on tomorrow’s nonfarm payroll data which Trump has already characterized as “big jobs numbers.” Will it be enough? At what point will the market run out of patience with Congress?
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ES has reached the top of the falling white channel we added a couple of months ago. At 76 points below all-time highs, a 2.2% move higher would make quite a statement about the integrity of the S&P 500 – essentially that a connection between equity prices and macroeconomic conditions is no longer a reality, nor even a consideration in investing. Imagine future FOMC press conferences and the derision that pretenses to the contrary would invite.
Is the Fed ready to cross the Rubicon? Or, could this finally be the end of the road?
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Aside from the higher highs which busted ES’ H&S Pattern yesterday, not much has changed. Congress and the Trump administration are still fiddling while America burns, failing to come up with a package that could keep millions of businesses and families from slipping into bankruptcy and foreclosure.
Futures are off about 15 points, driven primarily by weakness in oil and gas and another gap lower in the 10Y.
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Head & Shoulders patterns are fairly reliable harbingers of downturns. The one which has been setting up on ES for the past couple of weeks promised a 100+ point plunge.
It was just now busted by none other than VIX – the algos’ favorite signal – which caused ES’ right shoulder to marginally (by 1.50 points) exceed the head. 
With the pattern now officially busted, there’s no downside risk, right? If Congress’ failure to reach a stimulus compromise and foreclosure protection doesn’t matter, then sure. No more risk.
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Yes, it was impressive. AAPL, FB, GOOGL and AMZN delivered big time. Yet, AMZN, the one that was best positioned to clean up, hasn’t yet broken above a key Fib level, let alone the top of the 20-year old channel which marked the July 13 reversal.
If it does, fine, bears should prepare for a long, long winter. But, until it does, this remains a dangerous moment for the recovery’s poster child.
While we’re at it, did anyone notice that after tagging yesterday’s downside target, futures bounced only to the .886 Fib? Or, that SPX is poised to pop and drop at its own .886 Fib?
Again, not a breakout.
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