As expected, Powell and Co. were not amused by the market’s recent exuberance and decided to take things down a notch.
The algos haven’t yet given up, though, with VIX still under pressure and DXY remaining oversold.
The reversal is working just fine so far. But, with OPEX tomorrow and two weeks left in the year, we’re left to wonder whether the bulls are ready to throw in the towel.
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They’re all important, but this one carries extra significance due to the potential for a slowdown in rate hikes, or at least the commentary regarding one.
Futures almost backtested the 200-day moving average overnight, but are now essentially flat.
After all the excitement yesterday, our targets remain the same across the board. If anything, the hoopla complicated the Fed’s task by aptly demonstrating the persistent froth in the markets.
I believe this practically guarantees that Powell will pull another Jackson Hole and scold investors for their irrational exuberance. Whether it will be enough to counteract the OPEX effect is anyone’s guess.
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Based on how the market is reacting, inflation is no longer a concern. The Fed will pivot and easy money will be back in no time. Except, as we’ve been discussing, this is one of those weeks which almost always overreacts to the upside: FOMC meeting, OPEX, end of year, etc.
As noted yesterday, the dreaded bearish signals such as a simple 10/20 cross have been averted – at least for now – and the algos are throwing a party.
Yesterday’s gap higher in VIX (in conjunction with a 1.4% rally in stocks) was indeed a massive head fake in light of this morning’s 13% smackdown. Talk about closing a gap…
From where I sit, however, the Fed’s job just got tougher. While monthly CPI came in slightly lighter than expected, we still have problematic wage and rent inflation, and financial conditions are getting looser, not tighter.
Remember Jackson Hole? Maybe it’s VIX’s 13% plunge which is the headfake…
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Mystified by the fact that futures ramped higher overnight even though VIX is up over 6%? 
It’s all in a day’s work for the algos, especially on the eve of a critical Fed decision in an OPEX week at the end of the year when the S&P 500 is facing a bearish 10/20 cross.
The point, of course, is to prevent that 10/20 cross which (as the futures demonstrate) is child’s play.
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Futures have rebounded from the worst of their overnight losses, but are still on the wrong side of the tracks following yesterday’s breakdown of the rising wedge.
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Futures are again backtesting the 200-day moving average as we approach the open.
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Powell’s speech will take on added importance following the release of this morning’s hotter than expected Q3 GDP print on the heels of a big ADP miss.
Futures are flat after completing the backtest of the trend line from October we had been expecting.
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Futures are flat following yesterday’s sharp selloff credited to the economic slowdown in China and hawkish Fedspeak. SPX closed below its 10-day moving average for the first time in 3 weeks, but is clinging to an important Fib level.
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ES came within 10 points of tagging its 200-day moving average on Friday and is backtesting its 3.618 Fibonacci extension yet again.
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I want wish all our members a safe and enjoyable holiday. We will take Friday off and be back on Monday, Nov 28.
Markets staged a little celebration of their own yesterday, with ES slipping back up above the 10-day moving average and 3.618 Fib – a gizzard’s throw away from the 200-day.
Otherwise, not much drama around the dinner table other than XLE failing again at its 93.31 double top as a rather inebriated CL stumbled and fell. The divergence is really quite stunning.
Durable goods came in much stronger than expected. Keep in mind that new home sales and Michigan sentiment will be released at 10am and Oct Fed minutes at 2pm.
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