S&P 500 continued lower as the 4,010 recapture attempt failed and 3,980 couldn‘t hold. Rejection at the 200-day moving average, with prices down over a 100pts, makes for more than a short-term setback – I‘ve been clear that the opening part of Dec isn‘t yet time to be wildly bullish. These weeks, we‘re searching for a local low in order to take the final 2-3 weeks of Dec into early Jan by the horns. Odds are still good for Santa Claus to come by.

But what about this week? Key to be nimble as we move between the 200-day and 100-day moving averages. Yesterday‘s momentum play provided such a brief opportunity, and now it‘s about whether the overnight rebound fizzles out again or not. Both dollar and bonds changed sharply direction the intraday and favored retracement of a prior downside, but I can‘t be buying it really just yet. The key catalyst to look for in terms of upside fuel is Friday‘s PPI that‘s likely to show a slowdown in inflation, and then Tuesday‘s CPI probably to come at 7.5 or 7.6% YoY, which would once again (in both cases) feed into the „Fed would now really go slow on tightening aka pivot“ angle that markets are way too willing to run with. Willing as in misguided, because the Fed isn‘t getting less restrictive at all – see rate hiking and balance sheet shrinking combined, effects to play out still. No better indicator of demand destruction to come than the price of oil really – a sign of caution.

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S&P 500 and Nasdaq Outlook

Volume picking up, and unless S&P 500 reclaims 3,965, the daily outlook remains bearish – and that preliminarily goes for tomorrow as well. Downside targets in case the bond upswing fizzles out today, are given in the opening part of the article.
 

Credit Markets

Something is wrong with HYG – I don‘t see junk corporate bonds recovering through Thursday. Much work is still ahead to turn bonds risk-on, no matter what precious metals and commodities today (looks more like a function of the dollar's daily decline).

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