October was the third down month in a row for the S&P 500, but November is starting off with a bang!
Now that we have had the VIX crush into FOMC, as expected, what's next?
Well, FOMC is not expected to surprise - but to hold rates steady at a 22-year high for a second meeting, while leaving open the possibility of another hike as soon as December.
"Leaving open" is the key to whether Powell steps onto the podium and sounds hawkish about that end-of-year promise of a hike OR admits they will pause. And then the question is whether my expected "Pause" mantra is perceived as bullish by the market (read: "yeah, Fed is done hiking so next step is cut!"), or bearish the market (read: "oh, Fed is done hiking and next step is cut!!")
Either way, the "Buy the rumor of a pause/pivot" since March 12th Fed/Treasury bank-backstop intervention... was only recently unwound in part for equities and bonds post July 31st quarterly refunding announcement (QRA) of US treasuries that triggered the grind higher in US dollar and yields.
Now that we have received the Oct 31st QRA, we have the playbook: the can is getting kicked down the road despite continued heavy treasury issuance and bigger debt auctions for the foreseeable future.
So does that make equities a swing long buy? You have my opinion/analysis: Capitulation Low? Not Yet!
As for bonds, I am still a bear, even if the voices are growing for bonds > equities as rotation trade.
With the Federal Reserve set to hold rates steady for a second straight meeting the first time in this hiking cycle, it’s clear we’re near the end of the line. But what comes next is not going to be at all like what came before it. After fifteen years of easy money and a swollen balance sheet, expect the Fed to be a permanently changed institution in ways that are more favorable to bonds than risk assets. Ed Harrison, Bloomberg
Forward Guidance + NFP
The real news from this meeting will be any signal from the Fed about where rates are headed and when. There’s only one more meeting scheduled for 2023, and that’s on December 13 - a long way away - but traders are betting against a December hike.
The next big test for the market comes on Friday when the government releases the October jobs report.
Again, no surprises expected. The Labor Department said that jobless claims rose by 10,000 to reach 210,000 for the week ending on October 21.
That is not even close to my line-in-the-sand of 267K which will trigger volatility.
For this Friday, the consensus on Wall Street is for a gain of 170,000 net new jobs.
A big miss could have a dramatic impact on the stock market.
Bullish Seasonality Slant
Via TheMarketEar:
Goldman estimates that we should be seeing around $2.5bn per day coming to the market in November in terms of equity fund inflows. Add to that buybacks which are back close to full force at the end of this week and by some estimated to run at close to $5bn per day at peak later in November. And then potentially add to that that >$100bn short that CTAs might have to reverse....
"We have CTAs modeled short -$100bn of global equities (0th%tile) after selling -$41bn last week. In the US, CTAs are short -$25bn of equities after selling - $20bn last week.
We are past peak blackout. The open window will last through ~12/08/23. We just started the best period of buybacks of the year.
But let's see how we do this week before getting too excited. If we have a durable low, it will be tested a few times and not break below.
So far... this bounce in SPX has tagged wkly support at 4119.28 into 4218.78. We have hit just as we approach FOMC announcement at 2PM and Powell at 2:30.
VIX has fallen hard from 23 to 17 which is likely where it bounces (17.36 200D). I'm wrong if it gets/stays below...COMPQ:SPX chart I highlighted Friday at channel support holds the key (see chart) as it really matters.
We bounced so far, but AAPL reports Thursday after the close.
And with USD/10Y still VERY strong on a wkly, and breadth for SPY, QQQ + IWM still abysmal, I will wait on covering even my mega cap tech plays until the week is done.
I will know if I'm wrong when COMPQ gets/stays above 13,500 (see chart). Until then, we are still in STR not BTD mode
.
SPECIAL LIVE TRADING ROOM SPECIAL FOR MEMBERS ONLY 2:00 - 3:00 ET TODAY.
Did you enjoy #samanthas-market-thoughts posted above? Then you would love full access to her and her live trading room, detailed macro and intermarket analysis, not to mention full portfolio of trades across Chase, Swing and Trend timeframes!
Upgrade to CLUB or EDGE today!