Futures reached our next downside target earlier this morning, the Fibonacci retracement at 4348 we added on Sep 9 [see: Just Don’t Call it a Taper.] ES is now off 4.6% since recent highs and 4% since our Correction Watch on Sep 8.
The algo factors, which have propped up stocks for months, are positioned for further losses following their realization that a bounce at the 50-DMA is not guaranteed.
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Watching the “market” melt up and bonds barely budge in the face of all-time highs in the monthly and annual PPI print… 
More grist for the Fed’s “transitory” inflation scenario.
Inflation is no longer dominated solely by soaring oil/gas prices. In other words, not transitory.
Will the party end? Not as long as the Fed can control volatility and interest rates – which are, for now at least, ignoring reality. Tomorrow’s another day…
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S&P 500 futures are soft this morning, flirting with their first drop through the 10-DMA in three weeks and breaking the dashed red trend line from Aug 16.
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OPEC+ is expected to increase production by another 400,000 bpd in today’s meeting, another dagger in the heart of the stubborn oil/gas rally. Of course, at this juncture, CL can backtest its SMA200 without even making a lower low. So, perhaps a pullback will finally be allowed.
Given how important rising oil/gas prices have been to equity performance, stocks might just have a hard time digesting a significant pullback.
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If you liked yesterday, today is shaping up as more of the same. But, there are still a few warning signs tugging at the market’s sleeve.
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Futures are continuing their meltup in the pre-market on a 4% bounce in crude oil and the usual overnight slump in VIX.
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COVID deaths continue to mount and the return to work pushes further into the future, a negative backdrop for equities at a time when they’re losing momentum from the reflation factors.
Futures are off mildly after bouncing off their overnight lows.
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The correction is gathering steam, with ES off 40 points earlier this morning before getting a bounce. From a technical standpoint the culprit is VIX, which broke out of the falling channel which has guided stocks higher since March 2020. 
Our downside targets remain unchanged.
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July retail sales fell 1.1% versus -0.3% consensus, reflecting the impact of stimulus payments, Amazon’s Prime Day change, and the general apprehension surrounding the delta variant.
Yesterday’s bad news faded under heavy algo action, with VIX going into meltdown mode…
…the instant SPX reached its SMA10. 
The bears will get another shot today.
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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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