Good Tuesday Morning, MPTraders! May 9, 2023-- Pre-Market Update: The Deer-in-the-Headlights Market: Not only is ES still stuck in the grasp of a 7-month range between 3800 and 4200 (more recently, a 5-week range between 4050 and 4200), there is an abundance of hopium from investors that the next catalyst will be the one that propels the index up and out of the range.
Investors find themselves hanging on every Fed meeting, Fed Head speech, and headline data release, such as CPI, PPI, and Weekly Jobless Claims. Yet despite improving inflation reports that indicate the 500 basis point Powell Fed rate hike cycle implemented 14 months ago IS having the desired effect-- and likely will continue to do so, thus alleviating the need to raise rates further-- markets remain stuck in a sideways funk, albeit much closer to breaking out of the top of the range.
What's bugging investors? Let's see now: 1) the narrowness of participation in the rally? 2) fears of another shoe to drop in the ongoing banking crisis? 3) additional "grey swans" like the regional banking crisis that will emerge from the distortions created during a decade of ZIRP and QE? 4) concern about how the Fed will deal with the stickiness of inflation in upcoming months without causing stagflation (slow or no growth accompanied by inflation)? 5) the ability of our politicians to get past their partisanship to avoid defaulting on paying our debt? 6) prospects of a meltdown in the US Dollar? 7) Questions about the policy posture of the Fed approaching the runway to the 2024 election?
I have probably left out 10 items, but you get the drift. UNCERTAINTY RULES despite the "best efforts" of Powell and Company!
Where does that leave us? Well, as deers in the headlights TODAY, traders and investors have frozen ahead of the debt ceiling meeting at the White House between Democrat and Republican leaders, ahead of tomorrow AMs April CPI Report. Maybe something will emerge from either of those potential catalysts to move ES back above its 20 DMA (now just beneath 4146), to make a run at the Upper BBnd Line, now at 4214, which will mean a challenge of the upper boundary zone of the 7-month range.
Or maybe not? A sustained press beneath the 20 DMA, especially into the close today will increase the likelihood that ES is about to relinquish much of last Thurs-Fri vertical 80 point advance... Last is 4139.00...