We finally saw the backtest we’ve been expecting as SPX fell a whopping 70 points (-1.47%), almost reaching its 10-day moving average and bleeding off its overbought condition.
ES came within a few points of our Fibonacci backtest, also coming up just short of its 10-DMA.
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If Jay Powell’s comments were intended to spur the market to new highs, NY Fed President John Williams’ were intended to slow the roll. On CNBC this morning:
“We aren’t really talking about rate cuts right now…we’re very focused on the question in front of us, which as chair Powell said… is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.”
Futures were not amused, dropping from slightly higher to slightly lower as he spoke even though today is OPEX [see: Does OPEX Matter? (which desperately needs updating)].
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CPI came in slightly hotter than expected at 0.1% versus 0.0% expected and prior (annual 3.1% vs 3.1%.) Core was 4.0% (unchanged) but 0.3% monthly versus 0.2% prior and 0.0% expected.) Core goods actually fell 0.3% while much stickier services rose a blistering 0.5%. This is all a bit of a disappointment for the rate cut crowd.
Futures are off slightly.
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Futures are essentially flat ahead of tomorrow’s important CPI print.
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Despite a much hotter than expected NFP print, VIX’s convenient collapse… 
…has once again convinced investors algos that there’s nothing to worry about. The 20-pt drop in futures following the print was erased within minutes.
It’s all in keeping with our year-end forecast, which remains unchanged.
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Algos popped in the past hour on a larger than expected increase in initial jobless claims with the more important NFP due out tomorrow.
But, the more dramatic move has been in oil, with CL reaching our next downside target and RB well on its way to its own.
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As noted yesterday, gold and silver reached our target ranges from mid-October. GC came up slightly short of its target from Oct 18 [see: Mideast Worries Mount]…
…before being aggressively hammered.
Silver nailed its target very precisely before meeting a similar fate. 
We’re faced with the usual questions after targets are reached: Was that it? Is it over? What’s next?
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Futures are off moderately on the first trading day after what was a torrid November. Bears might take some comfort from the overbought Dow, which has reached Fibonacci and channel resistance.
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October CPI came in unchanged following a 0.4% increase in September. For the year, CPI dropped to 3.2% from 3.7% in September. Core came in at 4.0% YoY and 0.2% MoM.
Futures soared on the print.
As we have anticipated for the past several months, it was a sharp drop in gas prices which produced the equity-friendly print. From CPI Continues Falling on July 12:
As we discussed last month, the benefit from YoY price declines in oil/gas has maxed out unless prices continue to fall. In other words, central bankers might need to drive oil/gas prices even lower.
From June’s No Surprise:
It’s important to note that oil/gas mustn’t rally any further. If gas were to level out at current levels, the strong positive correlation between YoY gas prices and CPI indicate that inflation would be on the rise from now through the end of the year.
And, Powell: Inflation Not Over:
… there is little chance of inflation not bouncing back up unless oil and gas prices collapse from current levels.
The breakout in July following OPEC’s production cut was followed by an incredible increase in geopolitical risks related to the Israel-Hamas war. Yet oil and gas prices are lower than they have been in almost two years.
It might not be a big enough drop to help Americans forget the 6.7% annual increase in shelter expenses. But, it’s certainly enough to break stocks out of their latest swoon.
Mission accomplished.
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This is one of the biggest weeks for economic data in quite some time. We get October CPI tomorrow, PPI and retail sales on Wednesday, initial claims on Thursday, and housing starts and permits on Friday. Of all these data, CPI looms largest for the markets.
Recall that September core CPI came in at 4.1% YoY, with shelter (+7.2% YoY) accounting for over 70% of the increase. With the recent sharp drop in mortgage rates, shelter could remain stubbornly high, complicating the Fed’s inflation fighting efforts and thus paring the market’s optimism.
Futures are off moderately in advance of tomorrow’s data after nailing our channel top target.
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