A Quick Update Ahead of the Next Potential Watershed Event for the Equity and Bond Markets: The Reaction to PCE

Good Friday Morning, MPTraders!  December 22. 2023-- Pre-Market Update: If the December 13th Fed Meeting (and supposed policy pivot) represented a watershed moment, then today's reaction to PCE inflation data for November could be a close second because a cooler-than-expected headline report that registers a year-over-year data point below 3% (2.8% to 2.9% is expected) and a well-behaved Core data point at 3.3% to 3.4%, then The Street's money managers-- most of whom are trailing the percentage gains of the benchmark S&P500 with just 5 trading days remaining in 2023-- will have to decide to chase a rising market despite its 17% gain since 10/27/23!  The rationale for chasing rising stocks is this: If PCE inflation is rapidly nearing the Fed's 2% target, then maintaining the current 5.38% Fed funds rate (avg) will be considered considerably too restrictive (Fed funds more than 275 basis points above inflation), and will "require" Powell to cut rates sooner than later.

Whether or not the nosediving inflation rate is also indicative of a rapidly decelerating economy certainly will be a concern, BUT NOT FOR THE NEXT 5 TRADING SESSIONS FOR FUND MANAGERS WHO CARE ABOUT ONE THING RIGHT NOW: THEIR ANNUAL PERFORMANCE AT 4 PM ET NEXT FRIDAY (12/29/.23)... 

My big picture 4-hour technical and pattern work in ES argues that as long as Wed.'s low at 4743.25 contains any acutely negative reaction to PCE, the dominant up trendline (shown in Turquoise Blue on my attached chart) off of the 10/27/23 low at 4175.00 will remain intact, and as such, so too will the bulls retain directional control of the market, with upside potential for a retest of the Oct-Dec. high at 4830.75 (12/20/23) and thereafter, a run at my outlier 2023 target zone of 4860 to 4900.

However, for whatever reason (a disappointing PCE report, or a sell-the-news reaction) should ES spike down beneath Wed's low at 4743.25, the index will be vulnerable to pressing rapidly to 4700 initially, and if violated and sustained, will point to 4660... Last is 4894.50...

From the perspective of 10-year YIELD, it will head into the PCE data circling 3.85%, down a full 23% from its 16-year high at 5.00% hit just 8 weeks ago on 10/23/23. A cooler-than-expected PCE can potentially send YIELD down to 3.65%-3.70% next, representing the nearest lower key support zone on my attached Daily Chart. Only a disappointing data point that sends YIELD higher to a CLOSE above 4.00% (4.03% is where the 200 DMA resides) will argue that the downleg from 5.00% reached downside exhaustion and already is in the grasp of a rebound period... Last is 3.85%...

More after the data...