1. Moving the markets

After last week’s Ramp-A-Thon, equities needed a breather. Even though the major indexes held up well throughout the session by bouncing around their respective unchanged lines, momentum waned during the last hour and south we went.

Given the advances of the past five trading days, a pause was in order, and that’s exactly what developed this afternoon. The question now remains if traders’ sentiment is bullish enough to build on recent gains to sustain upward momentum—even at a slower pace— during this seasonally strongest period of the year before the reality of fragile earnings sets in come 2023.

Two dovish and hawkish messages by a couple of Fed mouth pieces cancelled each other out but caused some whipsaws during the session with the S&P being unable to hang on to its $4k level.

Bond yields went sideways, the US Dollar was flat, but gold managed to score a +0.33% gain and kept inching closer to its $1,800 level.

The S&P is now 3.03% away from breaching its widely watched 200-day M/A, a key resistance level which, if broken to the upside, could give technical traders encouragement that the rally will continue, as third quarter earnings season moves into its 9^th inning.

1. Moving the markets

Only one thing mattered today, and that was the CPI reading, which came in much more “friendly” than expected. The index rose only 0.4% for the month and 7.7% YoY, its lowest annual increase since January. Expectations were 0.6% and 7.9% respectively. Even the core numbers were better than anticipated.

The market reaction was extremely bullish with the Dow jumping immediately some 800 points and headed higher from there with all major indexes following suit. All activity was supported by the 3^rd biggest short squeeze ever.

ZeroHedge summed up today’s 5 Fed speakers like this:

So, all 5 Fed speakers confirmed higher rates from here, 3 signaled somewhat less hawkishly, 1 signaled a slight fear of overtightening, and 1 was full-hawktard.

Bond yields dumped with the 10-year getting crushed, down an incredible 31 basis points to close the session at 3.823%.

As a result, the US Dollar plunged causing gold to have a good day with a +2.67% gain. The S&P 500 jumped over 5%, which was its biggest rally in two years. Whether this “light” inflation report will remain the same in the future is questionable, but for right now those traders believing in the idea that we have seen peak inflation and peak Fed (rate hikes) are enjoying their day in the spotlight.

This broad Ramp-A-Thon has pushed our main directional indicator slightly above its long-term trend line by a tiny +0.93% (section 3), its first peek above it since July. That event lasted only one week, before the bears took over and pushed the index to new yearly lows.

As a result, I like to see a few days of staying power above the line before officially issuing a new “Buy” signal for domestic equity funds. Being a little more selective about the entry point has helped us avoid whipsaw signals in the past.

Updating the historical analog, we find ourselves in this eerily similar spot.

1. Moving the markets

As far as the markets are concerned, uncertainty is the worst of any outcome, a theory which proved to be the correct today, as the results of the midterm elections provided no clear answers as to who would control Congress or the Senate.

Traders had assumed the Republicans being able to easily score most of the House seats, which had formed the basis for the 3-day rally. The idea was that any future spending and tax plans would consequently be blocked.

That did not happen, so the markets tanked across the board and, in the process, wiped out just about all recent gains, which pulled the S&P 500 back down to last Wednesday’s level.

Another extremely negative market influence were liquidity troubles for the crypto exchange FTX (it faces a federal probe), and it appeared that a potential takeover by Binance would not go through, causing some bond yields to retreat sharply as the flight to safety was on. The 10-year yield dropped almost 13bps to close at 4.083%.

The US Dollar rebounded, while gold held on to most of yesterday’s gains.

The CPI is on deck tomorrow and may give the bulls some hope, if the number comes in below expectations.