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Happy New Week, everyone. Although the values of futures pre-market have become rather meaningless lately, I’ll mention as of this composition that the ES and RTY are green and the NQ is red. Nothing dramatic is happening, and the only scheduled event of any consequence this week is the CPI report pre-market on Friday.
So the ES is indeed green, but for the past week, the market has been following a series of lower lows and lower highs. More importantly, it also completed a tidy little topping pattern which also just happens to be constructed beneath a broken uptrend. In other words, things are looking fairly well-positioned for the bears, in spite of these daily little exercises in green-i-tude from our bullish friends.
The two important headlines I saw today both came from Our Dear Leader Powell. In his testimony today, Chairman Powell declared that “It is time to retire the word transitory regarding inflation”, and “the threat of persistently higher inflation has grown.” Finally, he added that the Fed “can consider wrapping up the taper a few months sooner.”
The fact that inflation is here is no shock to the average American, but to hear it come out of the Fed Chairman’s mouth was a bit shocking today. Also, the idea of speeding up the taper has not been priced into markets. I believe soon we’ll be hearing Chairman Powell begin to broach the topic of raising interest rates sooner than expected as well.
So, what does this mean for markets going forward, and are we at a key turning point? If the Fed is now moving to a stance of acknowledging a persistent inflation problem, logic would dictate that a policy response would follow.
I was talking in my last post on Friday about the likely mean reversion move coming that should at least return SPX to a backtest of the 45dma, now at 4549. The low so far today has taken SPX down to the 4565 area, so that is getting close, and SPX is now in an area where it may turn back up, though I think a test of 4540 is likely at minimum before that happens.