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Bulls Get Another Shot After Bears Fail - Morning Market Squeeze

Key Tactical Takeaways:

>  With yesterday's SPX test of the higher sloping 21-DMA producing a bullish reversal, this is likely the last possible catalyst to push the index above the 3460/3465 area that has been blocking each intra-day rally attempt the past week.

> Rotation out of growth into value continues to accelerate.

> We are at a point in the cycle where we'll find out if this sell-off  in Treasuries is about to bottom (wave C) or enter an extension phase (wave iii of 3). The 10-Yr will not signal a tactical bottom until is settles below ....

> So far, the VIX is being kept at bay by the lower near-term stop (now at ...). Pending a close < the higher sloping short-term stop at ..., however, rotation to higher volatility will remain in effect.


Some Quick Thoughts:


In watching the tic-by-tic price action of the past 4 days (sounds exciting, doesn't it?), participants lack conviction in either direction. In situations like this, however, we must respect the prevailing trend. Bears had their chance to generate downside follow-through with two intra-day forays below our bullish NT Trailing Stop (now ...) in the past 4 days, but non-stop talking points regarding stimulus have continued to string the algos along just enough to prevent a closing violation of this key trigger.


Like it or not, it must be reiterated that MASSIVE "market" manipulation has basically trained contrarian traders to, as the great Cheri Oteri from SNL use to say, "simma down."  The fact that this manipulation has done an incredible job of limiting corporate distress, which shows up in the form of credit spreads sitting near their tightest levels of the post-Covid crisis, is one of several reasons why our outlook since the September highs has been for the market's pre-election cycle to remain within "healthy corrective limits. Right here and now, though, the trend of lower highs from the most recent peak of 3550 (set on 10/12) still leaves the market at risk to an "October surprise" during what remains a very weak point in the pre-election cycle.


In times of indecision, it's often the technicals that help "smooth" things along. With yesterday's SPX test of the higher sloping 21-day moving average producing bullish reversals on the hourly and daily charts, this important smoothing line is likely the last possible catalyst to help coax the index above the 3460/3465 area that has been blocking each intra-day rally attempt the past week. Futures are struggling in this area once again this morning, but the bullish overnight action still indicates that the trend leans toward a strong challenge of resistance in early trading. Ultimately, our line in the sand that must be surpassed to signal that the post-10/12 trend has reversed from down to sideways/up is ...


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