S&P 500 is extremely overbought. Personal Consumption Expenditures (PCE), excluding food and energy blow out to 6.3%.
The S&P 500 is grossly overbought, on the back of triggered short covering via Apple's earnings that came in very solid (recessionary slowdown? I do not think so). Yet, the rally was over the top, considering that the Federal Reserve is fretting every minute the market pushes up inflation on U.S. Dollar selling, to make things even more complicated for the Fed, is the Bank of Japan and Bank of England combined intervention into their currency and bond markets. Yes, money printing within stagflation which is utterly bizarre, yet not surprising. Both Central banks have combined over $100 Billion in U.S. Dollar selling (please refer my analysis) thus tipping 10 YR yields down, which set off High Frequency Trading systems to kick in, as they scour for evidence that the 10 YR yield and U.S, Dollar are being sold as an indication to buy into their narrow trading ranges. Not only is that a trigger for block buying (on a good day), it can quickly reverse to selling, all the while the wording "recession" and Fed "Pivot" keep turning up in financial news feeds.
This, when the Personal Consumption Expenditures (PCE) came in very hot, with the gauge showing Core inflation remains sticky at 0.3% (same as last month), but more concerning for the market is that high prices, excluding food and energy, are not just sticky but remain elevated at 0.5%. Which would mean wages. So, if an essential item you buy seems to have substantially gone up in price within a month, the purchasing power you once had is diminishing rapidly. And if employers keep raising costs, they'll keep raising pays, which will embed inflation further. They're quick to cut rates, but seem reluctant to raise, with the terminal rate forecast to be at 5%, it could end up being higher.
Chart 1 and 2 shows the S&P 500 rallying way above its support at 3692. With Chart 2, indicating that the Net Volume has dropped off after Friday's rally as traders cut positions (end month). Will this be an orderly sell off?
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