Futures did some important backtesting overnight. Can they extend yesterday’s gains into a huge quad-witching session with an important Fed decision on deck?

continued for members…

ES has backtested its SMA10 and is well above the SMA200. And, the pre-open dip should leave SPX above its own SMA200.

If DJI can push through its SMA200, it would be a nice vote of confidence for the bulls.The question remains: can these major indices push back out of their previously broken out channels? If we didn’t have the banking “crisis” in the headlines, it should be a piece of cake – especially through today’s OPEX and Tuesday’s Fed meetings which are typically sources of meltup momentum.

At the moment, VIX is holding below its own SMA200 again. This should continue to be the best indicator/driver of stock prices today.

Currencies remain generally supportive of stocks, but remain susceptible to a bearish tilt.

Although DXY is hanging in there, GC and BTC speculators are betting heavily that it won’t. CL has almost reached our next downside target at 62.43 where it should pick up some support. While RB continues to stall at its TL backtest.This has enabled TNX to continue to hold support.It would be unusual for CL to rebound as RB declines, but the situation is perhaps emblematic of the overall market: very high risk of big moves in either direction.

Lately, bond yields have been responding to a combination of equity weakness (the fear trade) and investors’ guesses as to Fed actions.The 2Y plunge from over 5% to 4% over the past week has been nothing short of stunning and is very evocative of past financial meltdowns. Remember, breaks above resistance have been associated with the biggest crashes.

A daily chart shows that 2s10s has already broken above the purple dashed line……and has tested another TL off its most recent peaks in addition to horizontal resistance on two levels.

I’ve received a number of queries about this. Why does it happen? Why is it important? Isn’t it a chicken and egg situation?

Those of us with enough gray hair remember that past financial crises felt a lot like the current one: the FOMC raising rates to the point where something broke, whereupon they rapidly lowered rates in order to minimize the fallout.

While the Fed swears they really want to stamp out inflation, this goal is clearly inconsistent with the welfare of the financial institutions and equity performance since their only tool with which to fight inflation is higher interest rates.

Remember, inflation is just simple arithmetic: the change in prices over a one year period. Take gas prices, for example. In Feb, the YoY change was -2.82%, which yielded a 6.04% CPI. Last June, the YoY change was +60.7% and yielded a 9.06% CPI.  If gas prices remain steady for the remainder of March, the YoY change will be -18.6% – a level not seen since Nov 2020 when inflation was 1.17%!If enough of the goods components of CPI simply flatline for a year, CPI will drop dramatically, even if those prices stabilize at elevated levels.

continuing…