It will be an action-packed week, that’s for sure. There will be plenty of data, including new home sales, pending sales, PCE, and the University of Michigan. On top of that, there will be a slew of Fed officials talking daily.

There will also be multiple Treasury auctions which have become must-watch events, especially with a 2-year auction on Monday, a 5-year auction on Tuesday, and a 7-year auction on Wednesday. These can all impact market directions, for better or worse.

Volatility Index (VIX)

The S&P 500 fell nearly 5% this week and finished at 3,693. It would have been worse if not for an end-of-day, short-covering event, with traders’ monetizing puts heading into the close. It was relatively easy to spot when the VIX dropped more than 7%, starting precisely at 3 p.m.

S&P 500 (SPY)

Currently, the S&P 500 looks to have finished the third wave down, and it may now be entering the fourth wave. I think it is more likely that this fourth wave plays out as a sideways consolidation, perhaps for a couple of days.

If that is how this goes, a fifth wave that equals the length of wave 1 could take the index to around 3,200 to 3,300 by the end of the first week of October. That would work nicely with the ascending broadening wedge pattern we have talked about now for several weeks.

It would also work with the 2008 analog we have been tracking for some time. The analog suggests the S&P 500 historically bottoms around the third week of October, but the S&P 500 in 2022 has been running about two weeks ahead in some cases.

So, a low in the first or second week of October would not be all that surprising. The analog also suggests there should be a pause at this point in the move down, which lines up nicely with a potential wave 4.

Liquidity

Additionally, reserve balances fell this week to $3.0 trillion, the lowest in the cycle and a level not seen since November 2020, when the S&P 500 was trading around 3,500.

QQQ vs. TIP

Plenty of items have been good indicators to suggest the June bottom would not hold, with the TIP ETF being one such indicator. The TIP ETF made another new low on Friday, and the QQQ has been trading about 12 days behind the TIP, suggesting the QQQ has further to fall.

Credit Spreads

Also, this week, we saw a massive move higher in credit spreads, with the SHY to HYG ratio ramping up. It is probably a good indication the VIX is heading higher, should those spreads continue to widen.

JPMorgan (JPM)

The JPMorgan CDS hit a new cycle high on Friday, and this is worth watching as the higher the swap rises, the lower the stock price shall fall. The chart below shows an inverted price for JPM’s stock and the CDS. The CDS is at a historically low value, and this does not suggest a credit event is likely to happen. But what it does tell us is that volatility is rising.

Shopify (SHOP)

Shopify is showing a bullish divergence, with an RSI trending higher and a falling stock price. The good news for the stock price is that, thus far, it has been holding support.

ServiceNow (NOW)

ServiceNow broke support this past week at $400 and has been trending lower towards $350. There is also a gap to fill, at about $325.

Costco (COST)

Costco, the stock with a head-and-shoulder pattern within a head-and-shoulders pattern, has been getting closer to completing the smaller H&S pattern at $454.

AMD (AMD)

Finally, AMD has been close to completing that gap fill around $62. With support at $73 broken, there is a chance it could fill that gap soon.

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