Please see here for more information on The Weight of the Evidence (The WOTE) cross-asset market research platform. If you do not like The WOTE content, please unsubscribe. If you believe someone else might like the content, please feel free to pass along (it’s free, after all). Thank you.
Discussion
As discussed yesterday, a local SPX low is in sight, if not already in. But despite this morning’s pre-market equity buoyancy, Bitcoin is curiously unhappy. Oil, rates, and CDX are down a bit, providing equity support, but BTC is sitting near its lows. Yes, there are other factors that drive BTC price action, but even adjusting for that BTC tends to act as a leading indicator for equities to the upside and downside. As such, I would not be surprised to see some form of an under-cut low today on SPOOZ that sets the low for a number of days if not a week or two.
FEDeral Government Strike Price
I do not believe that FEDeral government policymakers will allow more than a -10% correction in equities ahead of Election Day, but given how hawkish Powell was yesterday despite the breakout in rates and weakness in stocks, and the fact we’ve seen no public pushback from Yellen/Brainard against the rise in rates, I suspect the strike price of the election year FED put has moved down to -10% on SPX to around 4700-4800. Tactical indicators are far too oversold here to move in a straight line to that level, but the bounce in coming days/weeks that relieves the oversold condition is likely one to sell before a move down there.
Given the move up in rates, if FED policymakers are not going to pushback until UST 10s and 30s are above 500, then the April 2022 rates-driven correction could be the analog here.
More to come.