Economic data came in as expected except for Philly Fed – a huge miss at -19.4 versus -5.0 consensus and -8.7 prior. But, it was the former dove turned chief hawk Jim Bullard who decided enough is enough, suggesting rates could reach as high as 7% before inflation is tamed. Futures were not amused.
It’s almost inconceivable that ES/SPX won’t tag their SMA200 or channel tops this time. But, even though OPEX is tomorrow, it’s looking that way at the moment.
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October PPI came in at 8% annually and 0.2% monthly versus expectations of 8.3% and 0.4%. Core PPI remained unchanged at 6.7%.
Futures popped up to our 4050 IH&S target on the news, but had already ramped over 40 points prior to the print.
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Seemingly on a rail, VIX’s bump took it only to the top of the falling red channel in place for over a month.
A failure to break out means ES can top its 361.8 Fib extension and reach its IH&S targets. 
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With the election today and CPI coming out Thursday, things are bound to start getting a little more volatile again.
VIX can’t stay in this channel forever…
Don’t forget to vote!
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More of the same…perhaps until CPI comes out on Thursday.
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The market is essentially unchanged from yesterday, with VIX in a position to make or break this rally unless the FOMC delivers a significant surprise.
We’ve seen this movie before: a sharp rally into a Fed meeting or CPI report that wipes out the put buyers and positions the market for a drop from a higher price level once the disappointing news is delivered.
There is widespread expectation of a 75 bps hike, but less agreement about whether the FOMC will be as dovish as the market’s latest rally would suggest.
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In yet another reminder of their sway over the markets, the algos have brought stocks to the brink of a breakout by putting VIX at the brink of another breakdown.
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Futures are off about 0.50% as we approach Wednesday’s FOMC decision and a slew of important economic data.
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Q3 GDP came in at 2.6%, beating the 2.3% consensus and of course Q2’s -0.6%. While good news for the economy, it does little to advance the narrative that the Fed might be ready to pare future rate hikes.
Nevertheless, VIX fell…
…so futures rose slightly on the news.
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ES rallied 7.3% off the Oct 13 lows to tag our target at the white channel midline – also the 20% correction mark.
This is the same target we added on Oct 14 [see: It Wasn’t Oversold] as it’s an important line in the sand.
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