Bulls and Bears Have Catalysts in Play

But Bulls have the trend in their favor

Technical Edge — 

• NYSE Breadth: 55% Upside Volume

• Advance/Decline: 64% Advance 

• VIX: ~$18.75

There has been some weird action lately. Despite a hot CPI report, the Street isn’t pounding on the S&P and it’s especially not pounding on tech stocks. Many high-growth names are screaming to the upside as they are now reporting earnings. 

Despite the prospect of higher rates for a longer period of time, investors don’t seem to care at the moment. For example, a month ago, the market was pricing in just a 3.5% chance of rates sitting at the 5% to 5.25% range in December. Those odds climbed to 28.5% last week. 

Now? That’s the base-case assumption, with odds at 36.2%. 

Investors also don’t seem to care that the 10-year yield hit its highest level of the year on Wednesday or that the dollar index is at a one-month high. Bonds are at a multi-week low, while the 2-year/10-year and 3-month/10-year spreads are at or near the deepest levels since the correction began. 

Those spreads are flashing a recession warning, but strong retail sales and a stubbornly high employment situation has many investors wondering if a true recession is on the horizon — or if the Fed will actually hike to the point where they manifest a recession. 

All of these cross-currents seem to be showing on the charts — at least, IMO — as the S&P refuses to break out over multi-quarter resistance but has been trending higher. 

While there are multiple catalysts for both the bulls and the bears, it’s hard to argue with the recent trend, which has been higher. 

And one last thought: Has anyone bothered to ask what could happen if the Fed does get inflation under control while avoiding a recession (or only enduring a small hiccup?) Anyway, onto the charts (and a few extras).

S&P 500 — ES 

Above is the 30-min chart for the ES. Let’s see if ~4125 holds as support on a dip. Below that could put yesterday’s low in play. 

Keeping it simple today: I want to see how the ES handles these levels. Keep in mind, the CPI low of ~4104 could be a pivot area for the ES if we see it today. 

On the upside, 4160 to 4168 is resistance. Above it and 4185 is in play. 

SPY