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Despite Constructive Backdrop, Price Action Warrants Caution - Morning Market Squeeze

Key Tactical Takeaways:


> With TLT now entering the tactical target zone of ... to ..., tactical profit taking on shorts is recommended in this zone. For the bearish short-term trend to change, though, settlement is required above ....


> While Wednesday's close > the post-08/18 downtrend establishes a bullish short-term trend in GLD against ..., we need to see follow-through above ... to believe in the move's sustainability.


> As USO struggles to confirm what appear to be two popular bottoming patterns with follow-through strength > ..., we'll favor an eventual upside break as long as ... holds.


> For a 2nd straight session, the VIX is knocking on the door of its critical near-term stop at ... If a close > this stop materializes, it would introduce the usual jump in pre-election volatility.


Some Quick Thoughts:


For the majority of Wall Street strategists that have based their bullish outlook on an eventual vaccine and one-party dominance in Washington, recent hiccups in the global recovery and tightening in the polls are starting to cause some concern that a rebound delayed past the middle of next year could levy a longer-lasting toll. As this narrative continues to play out, the S&P 500 is trying to find equilibrium near its widely followed 50-day smoothing line, which rests just below at 3403.90. As this correction matures, however, we can’t help but notice that the one last bullish wave scenario which suggests the post-10/12 pullback is a correction (4th wave) ahead of a final rally to test the all-time highs, is...


Look, there is no doubt that seeing credit spreads at the tightest levels of the post-Covid cycle as industrial metals and longer-dated rates continue to rotate higher is comforting to the bullish case. Tactically, however, the emergence of a large late afternoon seller of equities in recent days has forced the benchmark S&P 500 to this critical test of our volatility-based near-term trailing stop at 3426.60. Although futures have recovered this morning after they fell below this stop overnight, the current struggle to rally back above the bottom of a popular bearish continuation on the intra-day charts (resistance is at ES1 3429ish), AUDJPY looking very bearish against ..., and the VIX still threatening a break above the critical NT stop at ... are all having us approaching this market with caution until SPX can close back above ....

 

For interest rates, this week's sole source of long-end supply was not enough to slow aggressive steepening. As the 10-Yr yield nears the ...% area, though, it can be argued that extremes in both absolute (i.e. 10-Yr yield price action) mean displacement from the short and intermediate-term means and put/call positioning should make for the development of a meaningful ...  


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