Weekly Wisdom: Will Interest Rates Keep Going?

Greetings fellow traders and welcome to your October 20th 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 17-21:

• SPX has been subject to a very choppy week consisting of multiple large gaps but remains above the 3500 low from last Thursday’s hot CPI print and bullish VIX deviation we pointed out. 
• TNX the 10-Year Treasury Yield has risen to new year highs of over 4.10%, giving bulls some trouble in continuing higher on SPX.
• DXY the US Dollar Index, which can be viewed on the $UUP ETF, is wedging out on its daily chart in an uptrend. Bulls are happy to see this below 52-week highs, bears are happy to see the uptrend still fully intact.
• VIX has stayed below the recent 35 high but has also stayed above 30, giving a pause to the hard selling yet keeping the SPX ranges very large. 
• Notably, VVIX has dropped hard to new lows for the month of October, and is also below the key 100 level – is this another positive divergence to take note of?  
• AAPL and AMZN are two notably strong stocks that have yet to break their June lows while basically, all other mega caps have. Do these need to break year lows before this is all over?  Possibly, otherwise, they should act as leaders when the market is finally ready to have a bigger rally.

And here’s what we are eyeing next week, October 24-28:

• $TLT, $TNX Bulls should be happy if rates can at least chop sideways, let alone come back down at all. 
• Bears should be looking for further acceleration in yields with 10-year level targets of 4.30%, 4.50%, and 5.00%.
• $DXY, $UUP Bulls would be happy if $UUP could give a drop below 30.
• Bears should be looking for this daily wedge pattern (which technically should resolve upward based on the bigger picture uptrend) to break higher over 30.60.
• As noted above, VVIX has made new lows on the month and is below 100, this very well may be flashing us a signal for positive divergence. Bulls need the VIX to break back below 30 and head lower toward 28 and then 26.
• SPX is trading in a wide, choppy range since the CPI low with 3600 support and 3800 resistance. 3750 and 3650 are some intraday inflection levels active traders should be aware of (bears should be nervous over 3750 and bulls should be nervous if 3650 is lost).
• New SPX year lows are very possible if 3580 is lost – trend line support from major bounces this year is down at 3250.
• If SPX can break through 3800 along with a VIX break down and TNX / DXY remaining in check, bulls should target the 50DMA around 3900, 4000, and then the 200DMA around 4100.
• Monday, October 24th we’ll get the US Flash Services and Manufacturing PMI at 9:45 am ET. The same data will come from France, Germany, and the UK earlier that morning 
• Tuesday, October 25th we’ll get the Conference Board Consumer Confidence Index at 10:00 am ET.
• Wednesday, October 26th the Bank of Canada will release their rate decision at 10:00 am ET with expectations of a 50bp increase to 3.75%. We’ll also get data for US New Home Sales at 10:00 am ET.
• Thursday, October 27th we’ll get the US Advance Q3 GDP reading at 8:30 am ET, as well as Unemployment Claims, and Durable Goods Orders m/m.  The ECB is then set to give a press conference at 8:45 am ET.  Also, the Bank of Japan is set to give its Outlook Report and Monetary Policy Statement.
• Friday, October 28th we’ll get the Headline and Core PCE Price Index  at 8:30 am ET. Then Pending Home Sales m/m and Revised University of Michigan Consumer Sentiment and Expectations at 10:00 am ET.  The Fed has noted they are paying close attention to PCE along with CPI, and markets have been reacting to UofM inflation expectations.

Here’s your Chart of the Week:

DXY US Dollar Index is wedging out on the daily chart…whichever way this breaks will be important for further market direction

SPY Daily / Weekly Update:

SPY continues to range out between 360 and 380 as we battle cross currents from UUP, TLT, and the VIX

SPY weekly chart remains choppy – it will be hard to see a new low on the year without a further VIX move over 35

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-Patrick Hawe

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