1. Moving the markets

While the major indexes were hugging their respective unchanged lines for most of the session, a last hour breakout allowed equities to close moderately in the green after the thrashing of last week.

It was aimless meandering for the most part with the Dow trading in a range from -260 points to +180 points. Rising bond yields, ahead of the Fed’s decision on interest rates this Wednesday, pushed the 10-year to 3.51%, it’s highest in 11 years. However, it faded back into the close.

Traders pretty much have accepted an upcoming hike of 75 bps, as the Fed appears to be determined to snuff out inflation, with some analysts even expecting a 100bps increase. It seems that the reality has finally set in that Fed chief Powell will not pivot (to lower rates) as had been hoped for during the summer.

In economic news, we learned that homebuilder sentiment in the US tumbled for the 9^th straight month, which is its longest losing streak since 1985, as ZeroHedge reported. That looks to be another nail in the real estate coffin, as mortgage rates have now hit 6%.

The US Dollar range traded, Crude Oil dumped and pumped, while Gold followed suit.     

Added a Bespoke strategist:

The S&P has now traded below its key 200DMA for 110 straight days – the longest streak since the bear markets of 2008-2009 and 2000-2002. It’s going to be hard to get too excited until the S&P moves back above its 200-day moving average.”

That goes along with my thinking that you should be invested only during major uptrends and avoid the choppy and sloppy bear markets rallies and their subsequent breakdowns.  

1. Moving the markets

The wishful thinking of traders and algos alike, that peak inflation was behind us, came to a screeching halt today, when the latest CPI number showed a worse than expected reading of 8.3, and that a Fed pivot to lower rates is now nowhere on the horizon.

For months, I have commented ad nauseam that inflation is only in the beginning stages, even though last month’s CPI dropped a tad from the prior one, as if one lower reading represents a trend.

And just like that, the eager front runners, who pushed this market higher, starting after Labor Day, ran into the buzz saw of reality and surrendered all profits in one session. In other words, the dead-cat-bounce has died on the vine, as the Fed will now for sure hike rates at least 75bps next week—or even 100bps.

The major indexes tanked in unison, as not only the Fed’s hopeful pivot disappeared but also the odds of wishful soft landing. The Fed and his staff had made it abundantly clear over the past few weeks that fighting the inflation monster would be their main priority, a theme that was simply dismissed by traders and algos alike, so today, the piper had to be paid for that ignorance.

There was no place to hide in this ocean of red, and even Apple, after having its best day since May yesterday, suffered its worst day since May, as ZeroHedge pointed out. That’s the kind of idiotic market environment we’ve been in for a while, with the much talked about short squeeze abruptly coming to an end.

Bond yields screamed higher, as bond prices got slammed with the 10-year rallying 10bps to close at 3.42%. Rate hike expectations surged, while the US Dollar shifted in reverse and rallied thereby taking Gold back down, but the precious metal defended its $1,700 level.

As ZH pointed out with this chart, it’s catch-down time for stocks, and with a $3.2 trillion options expirations day lurking on Friday, will the 2008-2009 analog hold?

As Trend followers, we are out of equities and will watch the show from the safety of the sidelines.