pebblewriter

Tag: SPX

  • Inflation: Still Here

    Annual CPI remained at 5.4%, the highest in 30 years. And, that alarming number masks plenty of data which the BLS methodology simply ignores. Shelter, for instance, registered a 2.8% YoY increase per BLS’ survey-based calculation. Yet observed apartment rents increased at 9.2% in just the first six months of 2021. And, housing prices have been rising at the fastest rate in over 30 years.

    Aside from the games played by the government, some non-transitory trends remain concerning: energy, vehicles and commodities all remain quite elevated. Combined with swiftly rising wages, it will be difficult to put this genie back in the bottle.

    The algos are more concerned, however, with another overnight smackdown in VIX which sent S&P futures to new highs – for now. Pay attention to where that leaves some important Fib retracement levels.

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  • Update on Gold and Silver: Aug 9, 2021

    The Fed detests gold and silver because, like higher interest rates, they are a stark reminder of the soaring inflation the Fed hopes we’ll ignore.  Interest rates can be manipulated lower by buying up every bond in sight. The Fed has been doing this to the tune of $120 billion per month.

    Gold and silver, on the other hand, can simply be shorted, which is exactly what has happened – once again breaking a significant long-term uptrend and dashing gold bugs’ hopes for a breakout.

    Silver, having reached our next downside target, faces a particularly important test.

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  • Charts I’m Watching: Jul 6, 2021

    Stocks rarely drop over a 3-day weekend. This one was no exception. The miniscule decline we saw in the futures last night has been all but erased despite a conciliatory 5% bump in VIX to backtest its SMA10. No fuss, no muss.

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  • Update on Currencies: Jul 2, 2021

    As we noted yesterday, EURUSD is finally fulfilling our expectation of a breakdown from the trend established at the Mar 2020 lows.  This move has been a long time coming and has potentially significant consequences for the DXY.

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  • Are Things Really Better?

    Under ordinary circumstances, a 2.3% MoM bump in Durable Goods orders would be very welcome – especially on the heels of last month’s -1.3% print. When inflation is a growing concern due to the Fed’s largesse, however, it complicates things. For instance, might it cause the Fed to take its foot off the gas?

    Not to worry, VIX was hammered sharply lower for the fourth session in a row. It’s now off 35% since Monday’s highs and has reached levels last seen on Feb 14, 2020, a few days before the market crashed. Note that this is the target we first charted back in early April [see: Irrational Exuberance and You]…

    …when we observed that VIX was repeating a pattern seen many times over the years.

    It should come as no surprise that VIX did break down and SPX did, indeed, rise above 3956. Like all the other breakdowns, this one has the potential to keep the party going long past curfew.

    This time, it went a step further – breaking below a falling trend line – especially bearish for VIX and bullish for stocks. It now has the opportunity to break below the trend line from 2017 — all the reassurance algos would need in order to bid stocks even higher.

    Along the same lines, RBOB futures just topped their May 2018 highs (CPI was 2.8%) and are now 27% higher than their Feb 2020 (2.33% CPI) peak – even though total miles driven in April 2021 were 10% lower than April 2020 and 11% lower than in May 2018. RBOB hasn’t been higher than this since Oct 2014 when CPI, now 5%, was retreating from its recent 2.13% highs.

    If this all seems a little overdone, you’re right. The economy has rebounded. But, few responsible economists would argue that things are better than in Feb 2020 when markets crashed as the pandemic roiled the global economy.

    The obvious X-factor, of course, is the massive amount of money the Fed has thrown at markets. The less obvious factor is the ease with which the Fed can manipulate algos. The warning signs which used to cause correction-causing reversions to the mean — rapidly rising inflation and interest rates, rising volatility, etc. — are no longer legitimate concerns.

    Why? Because the Fed has proven that stocks can keep rising even in the face of data that would otherwise be problematic. So what if inflation is out of control? Interest rates sure don’t reflect it. Below trend GDP? All the more reason for massive QE. They haven’t learned how to cure the patient, let alone prevent him from getting sick. But, they’ve rigged the thermometer, the blood pressure cuff, and the stethoscope to indicate that everything is just fine.

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  • Charts I’m Watching: Jun 21, 2021

    ES came within 9 points of our next downside target before getting a nice bounce motivated primarily by USDJPY, which was working flat out to save the NKD from a scary, and long overdue dive to its SMA200.

    This bounce will be quite important to the bulls, who are no doubt hoping to avoid a bearish 10/20 cross.

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  • Bullard: Wait, Did I Say That?

    Not that futures needed any help melting down this morning, but Jim Bullard just poured gas on the fire. Yes, Jim Bullard! The Fed president who never had a hawkish thought in his life.

    Then, he trashed the Fed’s most nonsensical policy: throwing $40 billion per month into the mortgage market when mortgage rates are already at all-time lows.

    Bulls better hope that ES can bounce at our next downside target: the 50-day moving average currently at 4174.

    It appears that algos are finally being given the green light to (drumroll please) decline.

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  • Currencies: Tick-Tock

    Neither yesterday’s FOMC announcement nor Powell’s press conference produced any meaningful surprises. Yes, the dots shifted slightly, but everyone knows they’ll shift a lot more before long.

    Futures easily reached our initial downside target and came within 5 points (so far) of our second. But, the real action was in currencies, which were finally turned loose. Look for EURUSD to finally reach our backtest target where it faces an enormously consequential decision.continued for members… (more…)

  • The Fed’s Big Day

    We’ve pretty much beat the inflation horse to death on these pages over the past six months. Bottom line, It’s too high and potentially out of control.

    So far, however, the Fed’s been able to hoodwink investors and algos and commandeer the bond market. Aside from making things much more difficult for the little guy – who they claim to care about – there have been few negative repercussions.

    But people are starting to talk. At first it was just fringe strategists like yours truly. Lately, it’s financial pundits, important bankers and hedge fund managers. Has the trance been broken? And, if so, will the market care? Today, we’ll finally find out how clever the Fed can be.

    Two years ago, before any of us had ever heard of COVID-19, our charts already called for some pretty dramatic outcomes.  We were pretty sure the 10Y, having reversed right on target at 3.25% in October 2018, was headed for at least 1.55%…

    …a target that was adjusted to 0.15% — 1.33% on January 13 at which point Wuhan City had reported only 40 suspected cases and one death.  On March 8, it reached 0.398% – well ahead of schedule thanks to COVID-19. Its rebound has been impressive – aided by a sharp rebound in inflation due primarily to the even more impressive recovery in oil prices.

    Ah, oil… We became convinced in March 2018 that oil was headed for a major breakdown, noting important cycles in its peaks and troughs. At the time, our model showed WTI (then at $62) dropping below $20 in early 2023.

    On Jan 3, 2020 we got more specific, pinpointing $17.12 on April 23, 2023.

    Of course, it dropped much lower and much faster than that. And, it’s recovery has been higher and faster than anyone imagined (or the fundamentals would support.)Interest rates and oil prices are irrefragably joined at the hip.  Gasoline prices are especially highly correlated with inflation… …which has traditionally been highly correlated with interest rates.   But, that all changed in the last couple of months when, thanks to the Fed’s ability to control interest rates, the bond market stopped caring about inflation.

    The stock market was elated as short rates flatlined while the 10Y marched higher…

    …leading to the first time in 20 years that a rapidly rising 2s10s didn’t lead to a market crash.The Fed has pulled off a pretty masterful reinflation of the everything bubble. Are they clever enough to avoid the inevitable pop?

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  • Is the Snoozefest Over?

    You know when the market is in a holding pattern by how VIX behaves. For the most of the past three weeks, we’ve seen sudden collapses in VIX just ahead of the cash open. It doesn’t always last, but it’s very effective in reminding algos to smack the snooze button, “fixing” any overnight declines and sending ES back to within a few points of its all-time highs.

    Almost every day for the past several weeks, investors have turned over and gone back to sleep. But, tomorrow, we’ll get some very important CPI and claims data that could change everything.  Are investors in for a rude awakening?

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