TME Daily: Post Powell - (s)lower for longer

The Market Ear Picture

Nothing else but beta...

"Investors have now discovered that everything is correlated to the Fed. And they are also discovering that most, if not all, of last decade's investment acumen was really nothing other than market beta and in some cases, nothing other than levered market beta." (Marc Rowan, Apollo)

King dollar - keep it simple

Trade the trend channel remains the most successful dollar trading strategy. This is a trend for the textbook. Note the 50 day perfection...

Source: Refinitiv

What about the 10 year?

US 10 year bounced on the steep trend line that has been in place since August. Note the 21 day moving average continues to hold perfectly. 4.2% is the first short term resistance to watch, and then (if) the 4.3% area. Support is down in the 3.9% - 4% area.

Source: Refinitiv

Higher for longer rates peak... you lower for slightly longer equities. Not a new chart, but a good reminder via GS.

Source: Refinitiv

GS: "a bit less concerned about overtightening enough to cause a recession"....

"Today’s meeting made us a bit less concerned about the risk that the Fed will unnecessarily overtighten enough to cause a recession next year, despite the hint at a higher peak funds rate. The FOMC laid out a strong case for slowing the pace of tightening even in the face of stubbornly high services inflation, and Powell reiterated that the aim is still to reduce inflation through a sustained period of below-trend growth and acknowledged that it will take time for the effect of rate hikes on inflation to be fully felt. Powell judged that the window for a soft landing has narrowed because the funds rate has to go higher. But we now see the odds of miscalibrating as a bit lower because the FOMC is likely to move less quickly and appears less likely to overtighten in a scenario where the underlying causes of the inflation problem are being resolved but services inflation lags behind and remains uncomfortably high for a while" (David Mericle, Goldman)

Range trading next?

JPM's Andrew Tyler on the possible range coming up: "The question now is do we retest YTD lows (3577)? To do so we likely need another catalyst which could be an escalation of geo-political conflicts or, and more likely, need to see an increase in CPI prints rather than lower-than-expected declines in CPI. Given that the SPX has held 3600, several clients have expressed hesitancy to press shorts on the view that we break those lows. This may mean that we are set in a range of approximately 3700 – 3900. Though this range may shift lower if the Fed fails to stepdown its rate hike magnitude."

SPX futures so far - up around 250 points from October lows at 3502, down around 170 points from recent highs 3928. This is actually a range...

Source: Refinitiv

Dow - now what?

Not everything is trading as poorly as tech, but Dow futures have so far reversed right in the 200 day moving and the negative trend line. Let's see where we go from here, but watching Dow is more important these days than in a long time...

Source: Refinitiv

SPX - levels to watch

SPX is close to the 21 day moving average. Support levels are 3750 and then the 3700 level (Wilson's stop). First real resistance is at 3900. Note the 100 day trading right at that resistance. Earnings season is fading, Fed was slightly more hawkish, the buy back bid is still alive...Maybe this market needs to consolidate before the next leg is decided...

Source: Refinitiv

NASDAQ - levels to watch

We are right around the 11k level which is important, but the "ultimate" must hold level is at 10800. Resistance is the negative trend line and the 50 day, trading a 5-6 percent higher.

Source: Refinitiv

NASDAQ - as if just bearish wasn't enough

QQQ is back in deep short gamma. Dealers are forced to puke lows and chase any bigger upticks. The tech "destabilizer" is back with max force...

Source: Spotgamma

Tired tech in a pic

The SPX vs NASDAQ futures ratio continues printing new recent highs, trading at the highest levels since March 2020...

Source: Refinitiv

Why hasn't Big Tech cut headcount more aggressively?

Bernstein sees three potential reasons:

1. Cultural. These companies represent the new wave of incumbency in Silicon Valley. Part of that aura is to be seen as a friendly safe haven for talent

2. Private companies operating in public. Amazon, Google, and Meta are companies born by disruption. These companies should be constantly improving their product and investing in growth areas. With incredible balance sheets, perhaps these companies should go heads down and keep building through fluctuating macro.

3. They don't care. Given the company tenure of management at each of the companies and supervoting shares at Meta, one could be forgiven for thinking that the company's leadership simply do not react to investor concerns. (Sanford Bernstein)

So crypto is not part of the global risk on/off puzzle anymore?

The gap between NASDAQ and ETH is huge, Second chart shows the gap vs BTC. Has the crypto space become so boring that not even Powell can manage to get it moving, or is crypto seeing something the rest of the world is missing?

Source: Refinitiv

Source: Refinitiv

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