Fed Sparks Global Market Meltdown, Vixplosion Next?
Good morning, folks! Well, well, well, the Fed decides to taper this year, and all of a sudden all hell breaks loose in global markets. If you're thinking this entire "recovery" was just one big magic trick of coordinated monetary debasement, you're absolutely right, and the market's reaction to the Fed minutes yesterday (and today) is a perfect demonstration of the farce.
It was an ugly overnight session across global markets, and as of 8:40AM, the Dow is down -0.91% to 34,645, the S&P is down -0.77% to 4,366, the Nasdaq is down -0.60% to 14,769, and the Russell is getting monkey hammered, we're down -1.65% to 2,128 (after losing long term ascending trendline support yesterday).
Vix is up a whopping 52% this week and sitting at a 23 handle. We're in the process of testing the descending trendline from the March 2020 high around 85. If this resistance crumbles, imo Vix is going to a 40 handle, and possibly a 50 handle by EOM. Don't forget, we have Jackson Hole at the end of August as well, and if the sentiment at the event is negative after the Fed's hawkish minutes, Vix could have a multi-week breakout, sending it back toward last year's high's. We all know valuations are at nose bleed levels, and speculation is at ATH's. The Fed was the only thing standing in the way of a return of price discovery/fundamentals, and now they've folded their hand to inflation. You know what comes next.
The dollar is scorching higher this morning - we actually tested the lower band of the wedge around 93.50 moments ago, before cooling back to 93.37. If we see a notable shift in the US Equity Put/Call, we're likely going to see a dollar breakout to our previous target around 95. This would imply a major correction across the asset classes. Simultaneously, USTs are being bid here which is sending rates tumbling also. The last time we saw a divergence this large against the S&P was in February 2020, just before the market crashed. In other words, the bond market clearly knows something stocks don't, and bond investors have been positioning for a crash since the US10Y yield peaked in March 2021.
In Crypto, Bitcoin (BTCUSD) slipped back to a 43k handle before recovering some of the losses. We're sitting at 44,486 and looking brittle. Having said that we have the 21EMA just below us at 43,359, as well as the 21EMA (w) around 40,867. These supports are likely to hold in the interim, but if we do get a multi-week repricing of risk, it's highly probable we see a revisit of the July low around a 29k handle by next week. Ether (ETHUSD) also appears to be losing steam here and rolling over aggressively on the weekly timeframe. A retest of the 21EMA (w) around 2,418 would be my base case in a prolonged risk off scenario.
Finally, on the data front, we saw initial claims come in this morning at 348k vs the 370k expected, while continuing claims slipped to 2.82MM vs the prior print of 2.899MM. This is actually not good for markets because the hotter the economy gets, the more the Fed will step off the gas. For a change, good news is bad news. The Philadelphia Fed index also came in moments go which shows an ugly divergence between the analysts expectations and reality. We're looking at 19.4 vs the 24 expected. Clearly regional manufacturing/business growth is slowing rapidly, hinting at stagflation dead ahead. Trade accordingly...
Thanks for your time today guys and enjoy the rest of your day, it should be a very exciting day of trade! Cheers, Michael.
* I am/we are currently long UVXY, HUV
It was an ugly overnight session across global markets, and as of 8:40AM, the Dow is down -0.91% to 34,645, the S&P is down -0.77% to 4,366, the Nasdaq is down -0.60% to 14,769, and the Russell is getting monkey hammered, we're down -1.65% to 2,128 (after losing long term ascending trendline support yesterday).
Vix is up a whopping 52% this week and sitting at a 23 handle. We're in the process of testing the descending trendline from the March 2020 high around 85. If this resistance crumbles, imo Vix is going to a 40 handle, and possibly a 50 handle by EOM. Don't forget, we have Jackson Hole at the end of August as well, and if the sentiment at the event is negative after the Fed's hawkish minutes, Vix could have a multi-week breakout, sending it back toward last year's high's. We all know valuations are at nose bleed levels, and speculation is at ATH's. The Fed was the only thing standing in the way of a return of price discovery/fundamentals, and now they've folded their hand to inflation. You know what comes next.
The dollar is scorching higher this morning - we actually tested the lower band of the wedge around 93.50 moments ago, before cooling back to 93.37. If we see a notable shift in the US Equity Put/Call, we're likely going to see a dollar breakout to our previous target around 95. This would imply a major correction across the asset classes. Simultaneously, USTs are being bid here which is sending rates tumbling also. The last time we saw a divergence this large against the S&P was in February 2020, just before the market crashed. In other words, the bond market clearly knows something stocks don't, and bond investors have been positioning for a crash since the US10Y yield peaked in March 2021.
In Crypto, Bitcoin (BTCUSD) slipped back to a 43k handle before recovering some of the losses. We're sitting at 44,486 and looking brittle. Having said that we have the 21EMA just below us at 43,359, as well as the 21EMA (w) around 40,867. These supports are likely to hold in the interim, but if we do get a multi-week repricing of risk, it's highly probable we see a revisit of the July low around a 29k handle by next week. Ether (ETHUSD) also appears to be losing steam here and rolling over aggressively on the weekly timeframe. A retest of the 21EMA (w) around 2,418 would be my base case in a prolonged risk off scenario.
Finally, on the data front, we saw initial claims come in this morning at 348k vs the 370k expected, while continuing claims slipped to 2.82MM vs the prior print of 2.899MM. This is actually not good for markets because the hotter the economy gets, the more the Fed will step off the gas. For a change, good news is bad news. The Philadelphia Fed index also came in moments go which shows an ugly divergence between the analysts expectations and reality. We're looking at 19.4 vs the 24 expected. Clearly regional manufacturing/business growth is slowing rapidly, hinting at stagflation dead ahead. Trade accordingly...
Thanks for your time today guys and enjoy the rest of your day, it should be a very exciting day of trade! Cheers, Michael.
* I am/we are currently long UVXY, HUV