EURUSD tagged our next downside target overnight: the .618 Fib at 1.1285. As we discussed in last month’s currency update [see: At The Brink] this breakdown below support has been instrumental in helping DXY achieve our long-expected breakout.
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VIX collapsed in the nick of time yet again, busting ES’ latest falling channel.
Has the run to the year-end barn begun already? (more…)
Stocks tumbled yesterday on inflation numbers that call into question the pace of the Fed’s taper and rate increases. Then they rallied overnight on an 11.4% collapse in VIX. 
The most significant chart on my screens at the moment, though, is the US dollar. DXY has had great difficulty breaking out of a tightly controlled consolidation pattern that dates back to July 2020. It tried this past September, but was smacked down to support stocks’ recovery from that terrifying (sarc) 5.8% slump.
Now, it’s making another bid for a breakout — one we’ve been expecting for months (a very lonely stance BTW) — which wouldn’t bode well for stocks. Is this one for real?
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Producer Prices for Final Demand in October jumped 0.6% MoM and 8.6% YoY (6.2% less food, energy and trade.)
Futures were little changed… 
…though the 10Y slipped to a cycle low of 1.43%.
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SPX tagged a significant Fibonacci extension Friday, but ES came up short of its equivalent target at 4728. Meanwhile, CL is faltering and USDJPY is rolling over as VIX faces a bullish 10/20 cross. What does it all mean?
Surprisingly, the answer might lie with the bond market.
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The 531K payrolls beat and Pfizer COVID-19 pill could influence the taper schedule. The 4.9% increase in wages should.
Energy and food prices might well fall over the coming months. But, wages are sticky. Whether due to contracts, minimum wage rules, or just market forces, they are very difficult to reduce. While it’s true that workers need higher wages in order to keep up with spiraling cost inflation, this is undoubtedly more fuel for the non-transitory inflationary fires.
Futures are up sharply on the news, which has the factors wondering what to do at ES 4700. Having delivered stocks (with a few trillion in help from the Fed) to all-time highs despite lackluster and occasionally bad news, what should they do with really good news that might speed up the taper?
Stay tuned.
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We’ve been keeping an eye on COMP lately, as it has often been a solid indicator of froth in the markets. It recently reached our next upside target of 15,667, continuing up to today’s high of 15,966.
The gains are especially noteworthy, as just 5 weeks ago COMP completed a very bearish H&S Pattern that targeted a drop through its 200-DMA for a 11.4% selloff from its Sep 7 highs. Instead, it joined the everything rally which began on Oct 4 and began a 10.5% climb.
Does this rally have legs, or is it ready to roll over?
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It’s easy enough to engineer a meltup in advance of a Fed meeting. We’ve seen it countless times. But, what about after a meeting, particularly one where an actual taper or rate hike is announced? The countdown has begun. Stay tuned.
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Equity markets rarely fail to rally into the end of the year. But, there have been several noteworthy Q4 exceptions over the years, each of them marked by VIX’s bounce off well-established trend lines.
Note that SPX’s yellow channel has been rising at a compouned 12.2% per year since the 2009 bottom – historically a very decent rate of return. With SPX currently testing the channel top as VIX tests the rising purple trend line, SPX is at a critical juncture where it must either correct or break out.
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Futures are off slightly this morning, passing on the opportunity to make new highs in the after-hours.
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