VIX’s 10/20 cross held yesterday, meaning we almost got a lower low on the day. The overnight ramp job was good for 32 points before DXY started attracting attention.
It has dropped below the falling trend line it was patiently following, meaning our forecasts in the currency space are accelerating – especially EURUSD and silver. 
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Another Thursday, another million filing for unemployment.
Hopefully news of Jeff Bezos’ net worth topping $200 billion will take some of the sting out of being unemployed.
As usual, the futures couldn’t care less, preferring to focus instead on whether or not the Fed will keep refilling the punch bowl following its virtual Jackson Hole shindig.
It’s not as though jobs don’t matter, but…VIX.
All indications are that the Fed will revise its inflation policy to “average inflation targeting,” meaning that it will allow inflation to run above its 2% target following periods where it has run below 2%. This is somewhat analogous to my new policy of dating supermodels only after going more than a month without.
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Futures tagged our white channel midline target again overnight… 
…before bouncing when VIX reversed for the third time at trend line resistance.
Note that ES’ white channel midline was first topped back on March 25. Since then, it has been tested 12 times. Clearly, someone thinks it’s pretty important. Who am I to argue?
All I know is that with interest rates and inflation suddenly on everyone’s radar, oil and gas are out of the equity-propping game. The dollar is bouncing today, but has broken down below some very long-term trends. So, USDJPY should be of little help.
Even the Fed has watered down its enthusiasm for driving the market higher now that it’s back to February’s highs. The unspoken message to the politicians: we got it back to previous highs, it’s your turn now.
So, aside from the usual VIX games, there’s not a whole lot to propel stocks higher. So, will the midline continue to hold?
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It’s those changes in latitudes,
changes in attitudes nothing remains quite the same.
With all of our running and all of our cunning,
If we couldn’t laugh, we would all go insane.
~Jimmy Buffett
As expected, yesterday’s Fed minutes disappointed and the market was none too pleased. Turns out the Fed isn’t quite as optimistic as the market; or, maybe they just feel like they’ve done enough in driving stocks back to their February highs.
ES came within a few points of our initial downside target before beginning its obligatory bounce.
With initial and continuing jobless claims coming in higher than expected and Philadelphia Fed coming in below expectations, the futures are under additional pressure and should test important support.
Should that support fail, our six-month forecast becomes more ominous.
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Today’s post could be an extension of yesterdays, with more beneficiaries of the shutdown such as Target and Lowes reporting big beats. Winners and losers.
Curiously, ES failed to make a new high yesterday even thoughy SPX briefly rose above its February highs.
You’ve always had to worry about predatory traders and specialists trying to catch momentum traders offsides, pushing above resistance in order to stop out shorts and draw in fresh meat. These days, the players have expanded to include predatory HFTs, algos, central banks, the US Treasury, politicians, etc. The list of “interested parties” is long and distinguished, and most of them have access to plenty of free capital.
So, as we always ask when SPX reaches new highs: breakout or headfake?
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Watching WMT this morning and wondering what it all means? After surging nearly 7% on blowout earnings, the stock has given up all its gains after the company’s commentary confirmed the obvious: there are winners and losers in a pandemic.
Unlike many of its general retailer competitors…Walmart sells groceries, meaning they were allowed to remain open even during the worst of the virus’ spread. They also have a substantial online business, helping them offset the slowdown in in-store shopping. Last, customers who might otherwise have run out of money when laid off received checks from the government which allowed them to continue shopping for low-priced essentials.
The problem WMT faces, of course, is what happens now that these checks have stopped. Will the stock recouple with the economy? Moreover, will the overall market recouple with the economy?
The old adage that “the market is not the economy” has never been more true. Pundits and politicians see major indices push to new highs and declare that the worst is over. The reality is that the AMZNs and WMTs of the world are simply taking market share from the millions of small businesses that couldn’t stay alive for the past five months.
For all the major retailers which have declared bankruptcy so far this year…
…there are hundreds of thousands which have done so with no fanfare nor headlines in the WSJ. They slip quietly away into insolvency as their PPP money (if they were able to obtain it) runs out and the bank account runs dry. They’re not publicly traded, so they don’t affect the market. But, the effects will be felt sooner or later. And, more will join their ranks as the country continues to fail the coronavirus marshmallow test.
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The algos are still threatening new all-time highs, this time egged on by the “wonderful” news that only 963,000 new unemployment claims were filed last week and only 15.5 million Americans are currently drawing unemployment.
It didn’t hurt that VIX made several sudden plunges in the past hour and that the USDJPY is threatening to break out again.
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PPI was expected to tick 0.3% (0.1% core) higher in July. Instead, headline PPI soared 0.6% and core popped a stunning 0.5% – the highest since October 2018.
The impact on stocks has been muted so far, as the market is still giddy over the potential release of what is essentially a Phase 1 vaccine out of Russia. The impact on bonds, however, has been significant. 10Y yields have broken out of a long, slow decline.
When you’re piling on debt (with record-setting duration) the way the US is, higher interest rates are not good news.
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NFP increased by 1.76 million in July, beating estimates of 1.48 million. Futures popped on the news, almost turning green before deciding it was a non-factor – perhaps as Trump had already spilled the beans earlier in the week. Or, perhaps it was due to most of the job gains coming in food service and retail – categories which are susceptible to large downturns if slowdowns and shutdowns continue to make a comeback.
The unemployment rate dropped from 11.1% in June to 10.2% in July, while U6 dropped to 16.5% – still a stunningly large number of unemployed Americans whose benefits have plunged in the past week.
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ES has reached the top of the falling white channel we added a couple of months ago. At 76 points below all-time highs, a 2.2% move higher would make quite a statement about the integrity of the S&P 500 – essentially that a connection between equity prices and macroeconomic conditions is no longer a reality, nor even a consideration in investing. Imagine future FOMC press conferences and the derision that pretenses to the contrary would invite.
Is the Fed ready to cross the Rubicon? Or, could this finally be the end of the road?
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