After Monday’s tumble, will Powell have the guts to stick to his inflation-fighting guns? Futures are up about 1.5%, but are still just shy of the 200-day moving average.
continued for members…
The SMA200 is a clear line in the sand. If we reverse off it – confirming the backtest – then the downside case looks very good.
There are very logical targets all the way down to the Feb 2020 highs at 3397, which is also the yellow 2.618 extension and the purple .886 retracement. It would be a 30% correction – bigger than most, but still short of the March 2020 tumble.
The SPX version: It will also backtest its SMA200 on the open.
COMP – obviously well below its SMA200 – still argues for at least a modest additional down leg to complete the channel midline test, 10% correction and .886 test.
VIX is an unclear signal at this time. There is a TL which could potentially break down, so bears should be wary of a drop through 27.45. Otherwise, it still targets 41.36+.
The currency picture is still one of wait and see. USDJPY is backtesting its SMA50 after almost tagging its SMA100. While EURUSD attempted to break down for the 2nd day in a row. DXY is still poised for a breakout after a nice recovery from the red channel breakdown.
Gold and silver continue to look vulnerable – especially if DXY finally breaks out today.
CL and RB (EIA inventories are due out this morning) are up again, straining the notion of a confining channel…
…and preventing the downturn in rates that the Fed craves.
UPDATE: 9:55 AM
That should about do it if we’re going to get that down leg today.
If I were Joe Biden, I’d make sure the EIA announces a huge build in oil and gas this morning.
UPDATE: 12:15 PM
As we wait for the Fed’s announcement, here’s a chart that makes the equity situation exceptionally clear.
We can gussy it up with lots of other channels, but SPY’s red channel has broken down and been backtested. In the absence of interference (hah!) it’s got plenty of potential downside.
Even a “major” downturn to the purple 1.618 Fib extension would be less than a .382 retracement of the rise from the Mar 2020 lows.
Stay tuned…
UPDATE: 2:14 PM
So far, a muted but negative response to the Fed’s statement. The press conference is usually more important…
More after the close…
UPDATE: 11:00 PM
The Fed is officially behind the curve and not yet willing to do anything about it. Of course, I continue to suspect they’re just buying time until March at which point they can say: “look, no more excessive inflation! No need to hike rates!”
Despite the initial bump, ES has given up all the day’s gains and more. It’s about to test the bottom of a little flag pattern at 4255ish. I suspect it’ll be down to the white 1.618 by tomorrow morning.
The fact that TNX is up strongly on the day is evidence that the market isn’t sufficiently scared. Therefore, there’s a good chance the losses over the next few days will be much worse.
