Powell Ahead

S&P 500 recovered from China uncertainty, keeping right below 4,000 until Williams and Bullard reiterated sticky inflation and high rates views. Reiterated – not bringing fresh and unexpected information. Still, stocks and much of the rest declined sharply, and even the 3,960s support was tested. It held, and overnight crawl higher began.

VIX is slowly picking up, and market breadth deteriorated, but Russell 2000 isn‘t in capitulation mode. Neither is my favorite Friday mentioned sectors. While I‘m not a raging short-term bull, I acknowledge the very solid medium-term prospects for the stock market rally to continue, especially over the final 2-3 weeks of the year. Markets are welcoming the decelerating inflation, and are willing to bet against the hawkish Fed rhetoric in the short term. Running on borrowed time, but running still.

Note crude oil and precious metals with copper – turning up on yet another China easing rumor. Should it turn out true, it would be powerful, but for now let‘s count on muted, positive effects on the ebbing and flowing real assets. More up than down as the sensitivity to tight Fed rhetoric and moves decreases.

Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there, but the analyses (whether short or long format, depending on market action) over email are the bedrock, so make sure you‘re signed up for the free newsletter and that you have Twitter notifications turned on so as not to miss any tweets or replies intraday.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).
 

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

4,010 will again be a daily stumbling block, but it would be encouraging to reach it on or before GDP tomorrow – then, there is Powell to recover from, his effect is likely to be bearish. The bulls don‘t want to see 3,960s give way. I‘m not yet looking to 4,040 – this will be a tough sideways week regardless of positive seasonality.
 

Credit Markets

HYG, LQD and TLT

The degree to which HYG gets its act together today will be most telling – as in determining the short-term direction this week Worst case, low 3,940s are the second line of support, but I doubt we get there at all.


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