How Much Fed Support Will Markets Get?
The S&P was incredibly two sided last week, yet was able to grind out a gain of roughly 1% and close just off the all time high by 0.6%.
The trend has flipped back to up. So long as buyers hold a higher low over the gray shaded area, it appears the larger down trend threat has been avoided… For now.
With a lack of catalysts last week, its not all that shocking to see the market balanced to begrudgingly higher.
The digestion appears more like price acceptance at higher levels noting that sellers were unable to probe deeper into the Thanksgiving rally range.
This week, we do get a major catalyst for the market.
FOMC: Rate Cuts Aren’t Enough
* The FOMC decision and updated Summary of Economic Projections release is this Wednesday at 2pm EST.
Over the last few weeks we’ve seen and discussed quite a bit of volatility induced by a lack of clear messaging from the Fed.
From, “inflation is too sticky, higher for longer,” to “the labor market is breaking, time to cut rates,” it’s been a back and forth, he said she said, without the proper CPI and labor reports to clarify which path seems most reasonable.
Well last week, the ISM Manufacturing & Services PMI reports came out, which both contain metrics related to inflation and labor.
As illustrated above, we can see that employment is still below 50 (contracting) but flattening in services, and prices paid are still over 50 (expanding) but trending lower since July.
Most notable is the recent downtick in services prices paid, remembering that services are the more sticky side of inflation. Hypothetically, services inflation should also be less impacted by tariffs, so assuming that were “still waiting” for the impacts seems to be a foolish argument.
Markets also received the latest ADP Non-Farm Payroll number, and a delayed September print for PCE inflation.
This continues to show deterioration in labor, and easing of inflation.
So it seems at this point the 25 basis point rate cut is a reasonable outcome for the FOMC decision this Wednesday based on the data.
The Fed tracker tool confirms this with +80% odds of the 25bps cut. If everyone knows and expects this, then it can’t be the main event.
What I expect the market to key off of much more so than the actual cut, is Powell’s commentary around quantitative tightening ending last Monday, and how the Fed plans to navigate adding back to the balance sheet to keep up with the growth of the financial sector.
As soon as QT stopped, the Fed injected the largest amount of capital back into the system in the overnight repo market since COVID.
It would seem that if the money printer is going to be turned back on, we should expect risk assets to perform well.
Historically this has been the case. Image from Bespoke.
So cast away everything else on the fundamental front, and focus on the Wednesday FOMC press conference and commentary from Powell about what is going on with the balance sheet.
This is the short term catalyst the market should care about the most.
We can use this narrative as a backdrop to help understand whats happening in the market, but as always, the technical charts light the way in terms of actionable levels.
Trade Brigade Live Squawk
Why wait for the holidays? Give yourself the early gift of intraday clarity.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Weekly
Nice resting bar seemingly accepting higher prices after the Thanksgiving rally. Note 654 area is now a firm weekly higher low and if this is to develop double top that must be broken for a trend change.
SPY – Daily
Still possible that a daily higher low can be set over the 675 area. Market has clearly shown momentum isn’t really there absent a catalyst. To trust or even participate in a momentum style breakout to the upside, perhaps FOMC is the catalyst needed?
SPY – Hourly
Be openminded to a grind higher ahead of FOMC. Trend is clearly up, but the market is making it hard. Shorts haven’t been rewarded at all. The red flags start if there becomes acceptance under 675 area.
Market Internals
Very balanced last week… Fitting considering the market was… well… balanced. No hidden divergence here.
Market Profile
Friday attempts to breakout of balance, but was met with some reluctancy to build higher value in the individual session. Really leaves a bit to be desired for bulls.
QQQ
One notable issue is the QQQ forming a lower high on the weekly instead of the equal high that the S&P has formed. This would be more alarming if the breadth of the market had not expanded (it has, next image).
Instead, I would just keep a more open mind to a higher low overshooting the Nasdaq 613 area and testing 606 as a more major line in the sand.
RSP / QQQE – Equal Weight Index
The equal weight index measures indicate a broadening out of the market rally on the premise of a more accommodative Fed. The Nasdaq lower high would be an issue if QQQE and RSP were rejecting the mid-points of range.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
Regardless of JOLTs, all eyes on Wednesday FOMC:
- 2:00pm – Decision, Statement, SEP
- 2:30pm – Powell Commentary
We’ll be streaming it live starting at 1:45pm EST on YouTube. Join us here: Live Stream
Top watches: ORCL, ADBE, CIEN, AVGO, COST
Swing Stock Scans
CRH – Daily
Bull flag forming under flat top base. Over 122 unlocks all time highs. Not interested if price accepts under the 50 SMA in blue.
EYE – Daily
Cup and handle ish pattern forming with possible breakout point up and over 29.5. Large unfilled gap above 31.45 up to 37.25 from a prior earnings cycle. Not interested if price accepts under the 50 SMA in blue.
FROG – Daily
Ascending triangle after a gap and hold from prior earnings cycle. Looking for a move over 65.20 for a move towards 72 based on prior weekly resistance. Less interested if the trendline fails to hold.
LMND – Daily
Over this base for a low cheat setup above 80 and then the pivot high at 83.65 continues the IPO open recapture rally. Overhead targets up at 93 and then 113.
*Disclaimer: I do have a position long in this name already
LMND – Daily
Over this base for a low cheat setup above 80 and then the pivot high at 83.65 continues the IPO open recapture rally. Overhead targets up at 93 and then 113.
*Disclaimer: I do have a position long in this name already