Weekly Review and Outlook Sept 11-15
Critical Hour for the Fed. And indices.
Weekly Wrap Up
Image 1. Is 4500 enough rope? The New Yorker magazine.
First of all, some housecleaning. I am rolling over to December contract - I do not adjust my levels as the references remain relevant even over the years. I will adjust as necessary when we trade through them. Be mindful of the contract gap however as these are filled more often than not (the June rollover is still outstanding!). For reference the settlement price for EPU23 is 4461.75 and EPZ23 4511.25 [link].
Shorts took control after the holiday, OTFD into Thursday before buyers were found within a point of a prior NPOC called out in Friday’s Missal. Buyers managed to look above into poor structure above 4475 (ESU23) before sellers were found, pretty much what we had expected. The contract gap put us above 4500 which I think gives the bulls a slight edge going into the week, although with Wednesday CPI and Thursday PPI this promises to be a volatile week.
Has the Fed’s job of reigning in inflation been successful? Are we headed to a path of deflation? I personally think not. What the Fed ought to do, in my opinion, is reduce their balance sheet (BS) which has exploded since 2020. This however would put pressure on markets, which they are hesitant to do. Despite earlier indications otherwise. Their strategy continues to be one of reducing consumption, which may very well not be the entire story here regarding the source of catalyst for inflation. Do we really think 800B in direct support to American households lit the fuse? With oil shrugging off a global slowdown and reduced consumption, this is a possible retrospective suggestion that that story is not all of it, and higher for longer (in rates AND inflation) will lead to a stagflationary situation. But more on this in the coming macro note.
I will be eyeing 4500 early on for clues this week given the gap below (Image 2). Trade below could push for a fill of the contract gap, erasing a speculated early bull advantage. This would also serve to repair some of the structure, giving the shorts time below and signaling acceptance of lower prices.
Image 2. Prior week profile. Not the gap below 4500, poor structure to 4479, and poor low.
Image 3. Areas of balance.
Daily, weekly, and monthly are now in balance as sellers have put a check on the first half of the year exuberance. Longer-term value (20D - Image 4 below) is at 4466, short-term 5D value a point above at 4467. Note the longer-term LVN around 4480 which will likely represent a key battleground level early this week. Observe the potentially trapped buyers above if upside initiation doesn’t see follow through.
Image 4. Areas of balance. 2pt increments EPZ23.
Levels Next Week
Two important levels early next week are 4480 (LVN) and 4530 (weekly high and just above August POC 4526). Participants may balance ahead of CPI. I am giving a wider range than usual due to the inflation data - a major report card for Fed policy to date.
VIX above 15.7 can support continued sell pressure possibly targeting the poor and weekly low at 4435. could support more upside. In related markets, CL could be headed for a test of 92 with 85 holding. Over 260 in TSLA and AAPL over 188.5 could set up the buyer case for 4600.
4609 gap fill
4548-91 DFVG
4529 PWH
4500 weekly pivot
4480 LVN
4461.75 contract gap
4424 poor low
4395 NPOC
a) Buyers maintaining 4500 with LIS at 4480 can aim for a break of 4530. Further targets to the daily FVG high side at 4591, and a break to 4609.
b) Daily close below 4480 could see a fill of the contract gap 4461, patient buyers may be found lower at 4414-24. An extreme target is a break to 4395.