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Monday did the week’s work in one session. ES opened near 7,760, cleared 7,793 by late morning and tagged 7,840 by mid-afternoon. Then it stopped. Sellers met it there every session after, with the high at 7,848.50 on Tuesday, and the index went nowhere for a day and a half.
Wednesday’s PMIs broke the stalemate. The composite came in at 58.4, the strongest business activity in about 5 years. With the Fed a week past a hike and one more penciled in, strong data is a rates problem. A hot economy keeps the Fed hiking, higher yields make future earnings worth less today, and the expensive growth names feel it first. The 10-year closed at 5.11%, the highest since 2007, and the 5-year touched 5% for the first time since 2007. The 2-year rose 12bp to 4.90%. The S&P fell 0.7% to 7,706, the Nasdaq 1.1% and the Russell 1.6%. ES closed at 7,772.25, 76 pts off the high and back under 7,793, the top of the old range.
We held the long for the upper target, as Sunday laid out, and reduced at 7,840. From Thursday’s 7,707.25 close that’s about 133 pts on the starter. What’s left is small, and the market is back in the range it spent most of September in.
VIX closed at 15.18 with the October future at 17.65. The gap narrowed to 2.5 pts from 3.2 Sunday, and it narrowed because spot came up, not because October came in. The risk is still priced for next month.
Below the line: Sunday’s map graded, the new levels for Thursday and Friday, the plan, and why the next 2 weeks look like a drip before a rally.
