Weekly Wisdom: Powell Ready To Take His Foot Off the Gas

Greetings fellow traders and welcome to your December 1st 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, November 28 – December 2:

• Powell sent the bulls into full risk-on, fireworks mode Wednesday afternoon as he gave a keynote speech at The Brookings Institute on the economic outlook.
• Although Powell noted inflation is still too high and more work needs to be done, overall he seemed ready to ease off the Fed’s overall aggressiveness; for what it’s worth, Powell seemed to be in a good mood overall as well.
• One key quote: “Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”
• $SPX roared from day lows around 3950 to stage a 100+ handle afternoon rally and close at month highs of 4080, also closing above its 200 daily moving average for the first time since April.
• $VIX is back toward recent lows but still remains above 20.
• $DXY and $UUP are back down to the lowest levels since August.

And here’s what we are eyeing next week, December 5 – 9:

• Now that $SPX has broken out to the upside, bulls once again have the job of digesting and holding before gearing up for a next leg higher. 
• Bulls do not want to see $SPX go back below 4000 – we consolidated and chopped between 3900 – 4000 for almost all of November before Wednesday’s breakout move. So if this is a “real” breakout over 4000, we should not be able to get back below. 
• $VIX back down to 20 has bulls hopeful. But we should take note it still has not made a significant lower low regarding recent prices, compared to $SPX clearly making a higher high – a possible negative divergence to take notice of.
• $VVIX also remains well off the lows made on November 22, another early possible negative divergence forming with $SPX higher highs.
• Monday December 5, we’ll get ISM Services PMI at 10:00 a.m. EST.
• Wednesday December 7, is the Bank of Canada’s rate decision at 10:00 a.m. EST.
• Friday December 9, we’ll get the November PPI and Core PPI at 8:30 a.m. EST.  We’ll also get the University of Michigan’s Consumer Sentiment and Inflation Expectations for early December at 10:00 a.m. EST.

Here’s Your Chart of the Week:

St Louis Fed Financial Stress Index

This is something Fed Member Bullard looks at when determining if the environment is bad enough to begin cutting rates… no stress to be seen here yet

Source: https://fred.stlouisfed.org/series/STLFSI4

SPY Daily / Weekly Update:

SPY gives a huge candle to break out over 400 and the 200SMA. Bulls now need to hold and build off of this 400 break out.

SPY weekly candle with a fantastic week, but approaching the big downtrend line from highs this year with 4100 being hard resistance. Are the Powell fireworks going to be enough for bulls to break through this trendline?

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-Patrick Hawe

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Patrick Hawe’s current positions:

*As of 12:00pm ET December 01, 2022

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