Discussion
On Feb 12 via private Xwitter I discussed the 2018 market analog when SPX hit 110% of its 100dma, a level SPX is currently coming off. It took just 8 trading days in 2018 for SPOOZ to correct almost -12%. Anything can happen, but it’s unlikely this market follows that script, as we’re 5 trading days in since the Feb 13 move down to the 20dma and just now getting back there. In short, it’s likely going to be a grind lower into March if at all, as the Yellen/Brainard “put” beneath the market is strong, with over $1 trillion of QE firepower in the RRP and TGA combined and the UST buyback program ready to go starting in May.
Today’s cross-asset market price action is suggestive of a slow-motion move lower, with IG CDX flat to down on the day and not confirming the weakness in equities, but VOL and defensive sectors firmly in risk-off mode. NVDA earnings and FOMC minutes tomorrow are key catalysts, so if the market sells off hard into the close today I would not be surprised to see a dead cat bounce tomorrow on “better than expected” outcomes. But sentiment and positioning are such that there is room to correct if the market wants to, especially considering the fact the market is in a window of “non strength” (update on this window Thursday).
Exhibits
Risk-off cross-asset market action today, especially the important intra-day reversal higher in USD.
IG CDX is not confirming the move lower today. However, there is an element of “catch down” here given the extensive bearish divergence between IG CDX and SPOOZ since December 13.
SPX is grinding lower from a technical perspective, back down to the 20dma today after the initial bounce off of this key MA on Feb 13. Jan/Feb 2018 saw SPOOZ correct sharply down to the 200dma over 8 trading days. IMO, this decline likely terminates somewhere between the 100dma and 200dma, if not at the 100dma circa $460 on SPY.
Lastly, from a sentiment and positioning perspective there is PLENTY of room for the equity market to move lower if it wants.