Discussion
Bulls are getting some follow-through today with defensive sectors lagging and VOL and HY CDX down, but breadth is quite poor and the % of NYSE stocks above their 50dma continues to negatively diverge from SPX.
Rates continue to be the key story to watch, as they reflect the Fed’s reaction function - today’s move up in response to lower-than-expected initial and continuing claims is the bond market telling us the reaction function is hawkish, not “going for a soft landing” dovish. Further, the US Dollar’s move up today - quickly reversing the dovish move lower in response to Powell yesterday - only confirms the hawkish reaction function emanating from the bond market.
Adding it all up, this looks and feels an awful lot like SPX is lumbering toward a correction, perhaps commencing after one last gasp higher on soft PCE and ECI data tomorrow morning.