Weekly Wisdom: Powell Not Ready To Hit Pause

Greetings fellow traders and welcome to your November 3rd edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Let’s get to what we’re currently seeing in these crazy markets and what we have our focus on going forward.

Taking a look back on this week, October 31 – November 4:

• ISM Manufacturing PMI came in hot at 50.2 vs 50.0 expected on Tuesday morning. The Labor Department’s JOLTS also showed 10.72 million job openings in September vs 9.75 million expected. This is basically the opposite of what the Fed wants; two “positive economic” numbers as the bank continues its fight to cool inflation and the economy.
• The Fed hiked interest rates by 75bps yet again on Wednesday afternoon. Powell’s comments during his press conference hit markets hard when he clearly stated it is still very premature to think about a pause in rate hikes, noting they still have a ways to go as inflation shows no signs of easing.
• $SPX struggled to move much past 3900 resistance earlier in the week before the Fed meeting, reaching highs around 3925 twice but failing to make a real move higher before the Fed.
• Powell’s continuous hawkish comments sent $SPX down hard, breaking below 3800 support with a close of 3759 on Wednesday afternoon, losing the recent uptrend from the year’s lows.
• $DXY and $UUP reclaimed and closed back above $30 on Wednesday, something bulls should be nervous about.

And here’s what we are eyeing next week, November 7 -11:

• Now that $SPX has lost 3800 support, our uptrend is broken and bulls need to take a step back and get more tactical. Levels to watch for support below are 3700-3675, 3600, and year lows down toward 3500.
• On the upside, bulls need $SPX to reclaim and close back above 3800 to start to feel comfortable again 
• $VIX made its move below 30 and has found a floor at 25.50. Bulls want the $VIX to break this recent consolidation and make a move down toward 24. A move back over 28 would give bears some further excitement. Keep an eye here for more positive divergence signals like we had at the low of the year on the last CPI report.
• $UUP the $DXY Dollar Index ETF has reclaimed the important 30 level in a big way – bulls really need $UUP to drop back below 30 or at the very least work sideways. A higher trending $DXY will only further hurt earnings estimates and future guidance.
• Tuesday, November 8 is midterm election day.
• Thursday, November 10 we get another round of inflation data with October CPI numbers released at 8:30 am EST. Will the Fed finally get their first real report of cooling inflation? Or do they really have a lot more work ahead of them?
• Friday, November 11 we’ll get University of Michigan consumer sentiment and inflation expectations – markets have been moving on these data releases.

Here’s your Chart of the Week:

Credit Default Swaps & Equity Vol

Will the Fed need to break something in this market in order to cool inflation?  Credit has been important to keep on watch.

Source: Goldman Sachs, Goldman Sachs Global Investment Research

SPY Daily / Weekly Update:

SPY could not push past 390 resistance before the Fed and has now failed back down on Powell’s hawkish comments – 370 and 360 are support levels to watch below.

SPY weekly chart is now damaged from the Fed – SPY needs to at least reclaim 380 for bulls to feel comfortable again.

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-Patrick Hawe

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Patrick Hawe’s current positions:

*As of 11:50am ET November 3, 2022

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