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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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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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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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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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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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.
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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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If yesterday’s better than expected ADP jobs data was bad news, then it stands to reason that today’s worse than expected DOL NFP print would be good for the market. 
Well, that, and the 13% pounding VIX has taken…
As it was hammered back below its SMA10, ES was ramped up above its SMA10. Funny how that works.
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You could argue that the annual PCE print of 3.6%, the hottest since 1992, is merely a function of the base effect – last year’s crash in inflation.
But that argument falls flat when you consider that MoM Core PCE, which is completely unaffected by the base effect, soared by a record 0.7%.
Naturally, both stocks and bonds ignored the data. After all, VIX has plunged 36% in the past 7 sessions, so everything must be okay, right?
Not so fast.
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The Dow, the most easily and commonly manipulated index, has gone nowhere since failing to hold its 3.618 Fib extension at 34,430. It begs the question: what’s the holdup?
Usually, when a closely followed index goes sideways for a while, it’s because an important moving average is moving into position for a backtest. But, is that the case here?
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