Between an FOMC meeting, consumer confidence, GDP, durable goods, PCE, consumer sentiment, new home sales and a slew of important earnings calls, this week promises to be one of the most important so far in 2022.
Somewhere in all that data we should learn whether the economy is really in a recession (spoiler alert: it is.) The market’s response could be both fast and furious.
Futures are up modestly but fading as we approach the open.
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Futures are backtesting the 10-day SMA this morning in the wake of the first two day decline since March.
Look for more to come.
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ES is now off 9.3% from its recent top (-7.8% from our Correction Warning), nailing our 3253 target overnight. The decline has broadened from the overpriced tech stocks to include banks, energy and cyclicals.
The factors we’ve been watching for the past three weeks are all bearish now, and bulls are starting to acknowledge the fundamental risks inherent in the economic and political landscape – not to mention an obvious uptick in coronavirus cases in many significant countries around the world. Contrary to politicians’ cheerleading and assurances of a successful vaccine just around the corner, the pandemic is still very much with us.
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Today’s post could be an extension of yesterdays, with more beneficiaries of the shutdown such as Target and Lowes reporting big beats. Winners and losers.
Curiously, ES failed to make a new high yesterday even thoughy SPX briefly rose above its February highs.
You’ve always had to worry about predatory traders and specialists trying to catch momentum traders offsides, pushing above resistance in order to stop out shorts and draw in fresh meat. These days, the players have expanded to include predatory HFTs, algos, central banks, the US Treasury, politicians, etc. The list of “interested parties” is long and distinguished, and most of them have access to plenty of free capital.
So, as we always ask when SPX reaches new highs: breakout or headfake?
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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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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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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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Futures have given up all their Tesla gains and are pointing to a slightly lower open for the S&P this morning.
Apparently, a threatened breakdown in VIX just isn’t as effective as it used to be.
What we have here is a failure to capitulate (apologies to Cool Hand Luke for the cheap rip-off of a great movie.)
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Note: CPI came in right on target: +0.6% unadjusted over the last 12 months. The MoM figure also rose 0.6% – driven, as expected, by the 12.3% increase in gasoline prices.
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The last time I wrote a post including all the FAANG stocks was in November 2018 [see: FAANGs – Now or Never.] Several of them FB, AAPL, AMZN, NFLX and GOOGL were in trouble from a technical standpoint. GOOGL, for instance, had just completed a death cross and the stock had broken down from a 10-year old rising wedge.
The S&P 500 itself was also in a bind, having dropped through its 200-DMA and struggling to remain above its 2.24 Fibonacci extension at 2703. As it turned out, it couldn’t. It shed another 14% (20% from the Sep 2018 highs) before being rescued by the Plunge Protection Team. Most of the FAANGs had similar troubles.
GOOGL, at 1071.05 at the time, dropped 24% from its July 2018 highs and tested its March 2018 lows and completed a huge H&S Pattern targeting 707 before magically finding its footing.
It has since piled on another 500 points, with two downturns along the way turning the rising wedge into a rising channel [it just needed a global pandemic and a horrible recession to help it along] which is once again offering overhead resistance. 
What about the rest of the FAANGs? Any other warning signs that we should be watching? Glad you asked.
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Today is a very important day in the markets. The signals that prompted us to short on several days ago are still intact, and more have joined their ranks – the most notable being the breakdown in the 10Y flag pattern.
ES snuck down and tagged our SMA200 target overnight. To put things simply: If it doesn’t hold, all hell will break loose.
There are any number of fundamental reasons for the market to tank, including the spikes in coronavirus cases in many states. Some governors, such as Texas’ Abbott, are even copping to how disastrous the situation has become.
Working to prevent a meltdown, of course, are the algo strategies which have been so effective since Mar 23. It should be an interesting next few days.
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