The market has frustrated both bulls and bears lately, vacillating between sharp downturns and even sharper recoveries. But, a close examination of the charts shows two very obvious patterns that suggest the tide is about to turn – not in a good way.
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After a brief respite, bank stocks are again under pressure with deposit flight and CDS both pointing to escalating concerns.
Neither the April CPI nor PPI prints support the notion that the Fed will lower rates any time soon – keeping the pressure on banks and an economy that depends on easy access to cheap credit.
Futures backed off the key 4166 threshold again yesterday, only to bounce back and test it again overnight.
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Futures are off modestly after a more hawkish Q&A with Powell than many expected. ES came within a few points of the 50-day yesterday. Based on the overnight action, it should reach our next downside target with ease.
It didn’t help that unit labor costs shot up 6.3% for April versus the 3.3% prior and 3.6% consensus. Perhaps the three rate cuts the market has been pricing in by year end don’t constitute such a great forecast.
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Futures are essentially flat ahead of today’s pivotal FOMC decision and press conference. This follows a day that saw stock prices plunge below our initial backtest target…
…as VIX actually broke out – at least for a few hours. 
The banking crisis obviously hasn’t gone away. How many more First Republics or Silicon Valley banks are out there – clicks away from a bank run? Even those banks which aren’t already in trouble will most certainly cut back on lending, which will certainly raise the odds of a (worse) recession.
Will the FOMC take that into account as they contemplate future actions?
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After establishing a well-formed falling channel and positioning for a bearish 10/20 cross, SPX soared last week on – what else? – another collapse in VIX.
In the process, the 10/20 cross was (at least) delayed and the channel busted. It’s normal activity for the lead up to a Fed meeting. Perhaps “price discovery” should be renamed “price setting.”
Perhaps we shouldn’t be surprised to see similar goings on in other “markets” such as silver.
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Futures are flat this morning after climbing back from a 20-pt overnight deficit. With scores of companies due to report earnings this week, we should be in for a wild ride.
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Futures are off about 30 points on disappointing earnings from stocks such as TSLA, AXP, KEY, etc. and a continuing slump in oil and gas.
VIX is even popping as we approach the open. If it holds, the rollover in equities will have officially begun.
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ES is up 1.3% in the past week. All it took was a 15% beatdown in VIX.
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VIX came within .01 of its previous lows on Friday…
…leaving plenty of doubt as to the algos’ next move. Today, we should see some resolution as moving averages start to roll over.
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March retail sales came in at -1.0% versus -0.4% expected and -0.2% previous. Core slipped 0.3%. Early reaction is that the drop wasn’t enough to forestall another rate hike in May. So far, the futures have taken the news in stride.
But, it remains to be seen whether the algos will view the setup as positively. VIX’s previous bounces off the TL from Jan 2018 have been tough on stocks.
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