[Chart courtesy of MarketWatch.com]

1. Moving the markets

A variety of events combined forces to pull the markets out of their doldrums, while not only creating a new “Buy” signal for our Trend Tracking Indexes (section 3) but also breaking the S&P 500’s glass ceiling, namely its 200-day M/A (+0.57%).

We also were re-acquainted with the fact that bad news is good news, as poor economic data releases were seen as putting pressure on the Fed regarding their hawkish interest rate policy.

As ZeroHedge pointed out, Job Openings fell by 353k, as hiring, quits tumbled to multi-year lows. US Pending Home Sales plunged to their biggest annual drop ever, and the Chicago PMI collapsed to Covid-lockdown lows.

But the big assist came from the Fed, when Powell presented his prepared remarks, while talking out of both sides of his mouth:

Dovish:

• The time for moderating the pace of rate increases may come as soon as the December meeting.

Hawkish:

• FED WILL NEED RESTRICTIVE POLICY FOR `SOME TIME’
• RATE PEAK LIKELY `SOMEWHAT HIGHER’ THAN SEPT. FORECASTS
• “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”
• CONSIDERABLE UNCERTAINTY OVER WHERE RATES WILL PEAK
• WILL REQUIRE SUSTAINED PERIOD OF SLOWER DEMAND GROWTH. It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high.”
• HISTORY CAUTIONS AGAINST PREMATURELY LOOSENING POLICY

There you have it. The caution that higher rates are here to stay far outweighed his lonely dovish comment. However, the latter was all the markets wanted to hear, and off to the races we went with the Dow scoring a 700-point gain, the S&P 500 storming ahead +3.09%, all of which now looks to be the beginning of the much hoped for Santa Claus rally.  

Once the bulls got the upper hand, it comes as no surprise that shorts were squeezed adding to the late session Ramp-A-Thon. Bond yields dropped sharply, the US Dollar got slammed, while gold was the beneficiary with the precious metal spiking +1.14% and having its best month since July 2020.

Back to the 2008-2009 analog. Have we now reached a point where 2022 will diverge and start a new bull market?

We will soon find out.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

While the major indexes wandered aimlessly throughout the session, they at least managed to dig themselves out of an early hole, crawled back and reduced their losses. In the end, not much was gained or lost.

Economic data points did nothing to encourage bullish sentiment with Consumer Confidence dropping in October, while Inflation Expectations jumped. US Home prices declined for the 3^rd straight month in September, as ZeroHedge reported, clearly a consequence of soaring mortgage rates.

All eyes are now on Fed head Powell’s speech tomorrow when observers will be hunting for clues whether the central bank might pause or even stop interest rate hikes. It appears that this kind of hopeful thinking, despite Powell & Co having clearly and repeatedly announced that they are nowhere near the Fed’s expected termination rate—now at 5-7%.

CNBC called the next 10 to 14 days a “data-rich period”, which may help clarify if inflation and economic growth can be balanced and, I suppose, co-exist. This Friday’s labor report and next week’s PPI number will add important context to see if this bear market bounce can be extended or not.

Bond yields rose a tad, with the widely followed 10-year bouncing off of yesterday’s lows. The US Dollar rode the roller-coaster again and slipped from yesterday’s close, thereby helping Gold to score some gains for the session.

Looking at the big picture, it appears that Central Banks all over the world are continuing to be in more of a tightening mood to battle the inflation monster, which has adversely affected consumer prices around the globe.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The efforts by a few traders last week to push the markets higher on very low volume came to an end today, when the full staff returned, pushed the sell buttons, and pulled the rug out from under last week’s rally.  

The major indexes shifted into bearish mode, right after the opening bell rang, and never stopped thereby wiping out all the Thanksgiving week gains. Our pending “Buy” signal has therefore been put on the backburner for the time being, as recent upward momentum has now been neutralized (section 3).

This long Holiday weekend introduced more disruptions to the bullish sentiment, as China’s social unrest, caused by extreme Covid restrictions, had local governments tightening their control over the population. That destroyed reopening hopes and put a downer on the world’s second biggest economy in terms of production and shipping.

Domestically, we were treated with a barrage of hawkish messages from a variety of Fed speakers, which ZeroHedge summarized as follows:

• 0950ET *MESTER SAYS SHE DOESN’T THINK FED NEAR A PAUSE IN TIGHTENING, NEED TO SEE SEVERAL MORE GOOD INFLATION READINGS
• 1200ET *WILLIAMS SAYS FED STILL HAS MORE WORK TO DO ON INFLATION, FURTHER TIGHTENING SHOULD HELP REDUCE INFLATION
• 1200ET *BULLARD: RISK THAT FED WILL HAVE TO GO HIGHER ON RATES IN 2023, MARKETS UNDERPRICING RISK FOMC MAY BE MORE AGGRESSIVE, FED HAS `A WAYS TO GO TO GET TO’ RESTRICTIVE RATES, FIRST 250 BPS OF TIGHTENING WAS JUST GETTING TO NEUTRAL, TIME TO LET QT PROGRAM RUN FOR NOW; SO FAR, SO GOOD

This was the final nail in the bearish coffin, and down we went. Even the most shorted stocks were not squeezed today, so they followed their natural tendencies, namely lower.

Bond yields retreated with the 10-year ending just about unchanged at 3.68%, as the US Dollar rode a rollercoaster in the process reversing recent losses. Gold followed suit but ended the day lower.

The S&P 500 has reached another critical point, namely its 200-day M/A, which is now in striking distance. Will we see a “threepeat,” or will the index finally break through this stubborn resistance level and support the bullish meme?

Only time will tell.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

It was another choppy session, as the release of the Fed’s meeting minutes (FOMC) showed a mixed picture in terms of future rates hikes. The Central Bank noted that it was seeing some progress in its inflation fighting efforts while stating that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.”

That was the official statement, yet chairman Powell uttered these seemingly opposing words during the press conference:

“Okay. So, I would also say it’s premature to discuss pausing. It’s not something that we’re thinking about. That’s really not a conversation to be had now. We have a ways to go. The last thing I’ll say is that I would want people to understand our commitment to getting this done and to not making the mistake of not doing enough or the mistake of withdrawing our strong policy and doing that too soon. I control those messages. That’s my job.”

There you have it. Nothing in terms of pausing or pivoting was mentioned by him, but traders took it as a positive, with the major indexes scoring their second consecutive day of gains.

On the economic side, we learned that New Home Sales unexpectedly jumped, Americans’ inflation expectations dropped at tad, Manufacturing and Services plunged toward recession territory, and the Labor Market weakened with continuing jobless claims hitting an 8-month high, as ZeroHedge pointed out.

A moderate short squeeze helped bullish sentiment, as did declining bond yields with the 10-year retreating to 3.70%, down almost 13 bps. The FOMC minutes and weak econ data pushed the US Dollar lower and Gold higher, with the precious metal recapturing its $1,750 level.

Looking at the big picture, ZeroHedge added:

Since last Thanksgiving the dollar is up around 10%, gold has held its value while stocks and bonds have crashed around 25-30%.

On Friday, we will see only an abbreviated market session, so I won’t write a commentary. However, I will be back this coming Monday to witness if the returning traders, well rested from the Holiday weekend, will push the “buy” or “sell” buttons.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

As I mentioned yesterday, with most traders being on vacation this week, reduced volume made it easier for the remaining crew to exuberantly push markets around and support the bullish cause. Looking towards the end of the year, hope that inflation might ease, and by association interest rates, was an underlying theme based more on wishful thinking than reality.   

Helping matters was the Wall Street crowd’s focus on a host of strong earnings and their positive effect on stock prices (Best Buy +11%, Abercrombie & Fitch +19%, American Eagle Outfitters +16%), as well as easing bond yields with the 10-year slipping to 3.77%.

As ZeroHedge reported, today’s Fed mouth pieces had this to say:

• Mester: “Given the high level of inflation, restoring price stability remains the number one focus of the FOMC…monetary policy entering a different cadence.” Translation – we are hiking no matter what, but the pace of hikes may slow.
• George admits Fed buying MBS stoked surging home prices, adding that it “could well take a higher interest rate for some time to convince households to hold onto savings.” Translation – we are hiking rates more and holding for longer.

In other words, a pause or pivot is nowhere to be seen.

After gaining for four days, the US Dollar managed to slide, while Gold ended just about unchanged.     

More earnings reports are on deck after the close today, along with econ data like initial jobless claims and PMI numbers. If there are no downside surprises, we might see today’s rebound get more support.

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