The S&P Levels You Need To Know

Interesting double-top, double bottom W forming in the S&P500.   In honor of George H.W. and George W.?  Hmmm……

The futures was rejected right at key resistance in overnight trading, making a hight 2814.0 during early morning pre-trading and it now down 31 handles in Asia trading.   The cash market was repelled today right at 2800 (2800.18 if your counting)

Doji City

The cash S&P made another well-formed Doji candlestick today.  Notice during this Q4 correction, Doji have signaled major reversals.   It is important the cash S&P closes above 2817 in the next few days in order to set the stage for the Christmas rally.

The S&P had rallied 6.43 percent from the Black Friday/Thanksgiving low below succumbing to profit taking today.

Cow Dung

If you read our Month In Review post last night, you would have noticed we are very skeptical of the fundamental basis of the recent rocket ride in stocks.   The Powell cave was a disgrace, in our opinion.

Take a look at the following chart, which graphs the 64 months where the unemployment rate has been under 4 percent over the past 70 years with the real effective Fed Funds rate (using monthly yoy CPI inflation) in that particular month.

Then try and convince us, or anyone, for that matter,  the Fed Funds rate, which is currently negative in real terms,  is “just below the broad range of estimates of the level that would be neutral”  with an unemployment rate at less than 4 percent.   Cow dung, baby.

Then there is the China Trade Deal, supposedly cut in Buenos Aires.  “It’s an incredible deal. It goes down, certainly, if it happens, it goes down as one of the largest deals ever made.”  A big if.

Then this last night that got the traders really, really lathered up.

The Washington Post reports,

But China’s readout of what happened in Argentina is different. China seems to believe that the only real movement was an agreement to halt additional tariffs and a mutual commitment to reduce the ones Trump and Xi put into effect this year.

In other words, Trump makes it sound like China is starting to cave to his demands. Top Chinese officials make it sound like the only thing that’s about to change is that U.S.-China trade relations would go back to where they were in January — before Trump unleashed his tariff war.  – Washington Post

Cow dung!

Upshot

Today’s Doji stick makes it more tricky to call a Christmas rally.  Moreover, Mr. Mueller appears he is about to deliver to the White House his Christmas present.  Will it be a shiny new bicycle and clean political bill of health or a lump of coal?  That will determine the mood of the tweets, and we know the tweets move markets.

Yield Curve Inverts

Have a look of this year’s Treasury auctions compared to last year.

With 2 and 3-year Treasury issuance growing at 30 percent with the belly growing at last than 10 percent, it doesn’t take a genius to understand why the yield curve is behaving the way it is.  Are we wrong?

We will have more on this later.