Oil broke further - hence the 'crack spread' (oil industry, not street level hah) collapse as Oil reset lower reset into our preferred 75-85 trading zone.

Freepik

It may unfold with a rebound, but I expected the slippage, believe it relates to how a beleaguered S&P was able to hold 4200 (for now), and how the future unfolds as Oil, in my always-humble opinion, has been my view of what matters most.

Consumer Spending also plunged (lower credit card discretionary spending), with these slight reinterpretations of preceding growth helping deflect what the Fed or analysts concerned 'about too robust an economy' portended matters. Thursday could well see an effort to retreat, today's bounce is fairly suspect.

Yield reprieve was the outcome of this, so while we didn't get (at least as yet, and might not) a break of S&P 4200, we did sniff this out both as forecast for Oil prices to break from 93-94 (disputing the nonsense 120-150 Wall Street hype of the last two weeks). And we emphasized there was what is called a 'cross-asset relationship', hence a view interest rates were peaking, chatter about more was irrelevant (or a smokescreen of hawkish nonsense), and the break of 4200 would be cleaner, probably provoking a classic selling climax.

In this case it's o.k., but will take more work and time to prove. A lot must still go right for today to have been 'the' low for October, but it's not impossible. At least I think the bears will show up and try to see what they can do, which will either break prices 'or' provide a secondary test of today's low. It's not just one day or week, but this is sort of a short-term 'tipping point' jostle seen today.

Market 'X'-ray: 

Oil is down into the mid-80's as I projected since 94, disputing Goldman and JP Morgan's 120 or 150 / bbl numbers (nonsense I said). Now you might get a rebound in Oil and retreat in S&P, but that might not stick.

The point is softer Oil and flattening or easing Yields for now, give momentary relaxation and a chance for traders to hold S&P 4200. In theory might not be a success (the holding effort), but thinking of the hedge fund leverage, maybe. I am sure they know the air-pockets that are out there if algo-selling kicks-in.

The funds (hedgers mostly) have heavily-leveraged positions that they fear a 'bank loan call' on, given they leverage more than retail investor ever do, that is a reason they don't want S&P to crumble and are support their 'book' too.

That's what today's about and hedge managers supporting their own 'book' as a break below this area could trigger algo-selling and bank loan calls I talked of (their heavy margin equivalent). Much more like 4x or 5x market values, so that's why a 20% S&P decline (or decline in holdings) can be a wipeout for the most leveraged aren't really effectively hedged.

But with all this known by now, and the Fed potentially near (or already) done, there's a fighting chance for investors to be stunned with a bullish reversal or gradually climb-out which finds 'all' sectors below their 50-DMA's, well, up isn't their expectation, but it is exactly where a contrarian might take a shot...long.

Bottom-line: 

Turmoil in markets, and in Washington, is ongoing and has zero chance of ending immediately. That means we have to tread lightly with this rebound off of S&P ~4200, but it's an interesting move with fading yields and on the back primarily of lower Oil prices, for the moment.

This could all change on a dime, or merely drop back for a secondary test, or a normal retreat could freak people and you drive lower and break that 4200 barrier (linear support as we've shown on charts). Can't overthink it, it's pretty simple and not related to any single indicator of Moving Average to forecast. Those are just markers which don't cover emotional flashes of buys or sales that can related to Oil, to the war, to the fight over the next Speakership, etc.

So for the moment S&P 4300 will probably provide resistance and while we're likely to see an upward extension in the morning building on the turn identified this morning (intraday comments plus 'Tweets' on X) there low confidence as to sustainability. Getting debt under control and actually governing would help.

More By This Author:

Market Briefing For Wednesday, October 4
Market Briefing For Tuesday, October 3
Market Briefing For Monday, October 2