Morning Notes – 6/24/2022

Good Morning:

• The bond market is the tail that wags the proverbial dog. At least, it used to be that way before the Fed started using the financial markets as its primary monetary policy tool.
• And let me interject, as a side note, that central planning by any measure is communism. I don’t understand why we find the Fed’s role acceptable considering their deplorable (no pun intended) track record.
• The bond market has been rallying lately (using the TLT Treasury ETF as my benchmark).
• You will recall my unofficial long TLT September Call trade several weeks ago.
• The bond market is beginning to accept the Fed’s commitment to fighting inflation. As Chairman Powell said yesterday, he is willing to impose a “hard-landing” recession and rising unemployment on the rest of us to accomplish his goals.
• A recession is precisely what it will take to impact inflation, as President Biden’s approval ratings plunge to the lowest levels of any modern President at this comparable stage.
• Meanwhile, I have been giving the stock market a slight bullish edge (and I mean tiny) for an intermediate low.
• We put in that low a week ago today.
• Futures have popped higher overnight to 3830. Volatility estimates remain near 1%, with 3800 now acting as support. The next support is 3750. Resistance shows at 3855 (SPY 385) then 3900. I would give the market a range today of plus or minus 45 points from the open, keeping in mind that we are opening above the WEM high at 3796 on the day weekly options expire. So 3800 or so will likely act as a magnet through the close, muting today’s gain potential.
• In rare cases, especially in bull markets, the market will bottom in a “V” reversal and not look back. The reversal usually begins with an inverse head and shoulders pattern. Arguably, there is one forming on the daily chart.
• A valid “V” pattern requires the market to follow through in the next few sessions, break the balance range high at 3844, and then slide through the air pocket above on the way to 4000.
• The more likely alternative to the “V” is a full retest of last Friday’s low at 3639, or perhaps flipping slightly above the low off the rising trendline. But we successfully probed that low three times on the 16th, 17th, and 21st. Maybe that gives the “V” reversal a slight edge.
• Of course, the retest could fail, putting us into the other air pocket below 3639 that finds major support at 3400, with a couple of tree branches the market could grab onto as we slide off the cliff.
• So, it might be this, or it might be that, right? Doesn’t that help?
• To further complicate the case, there are rising wedge patterns all over the stock and bond markets, which typically means that these markets are getting ready to drop one more time – supporting the retest theory.
• And, to spice it up a bit more, recall that the WEM high is at 3795, about 30 points below where the market is trading at this early, pre-market writing.
• More than likely, dealers will try to hold the market to this level before weekly options expire at the close.
• And what about the Navigator Algorithms? The Algo already threw an “E” exhaustion signal and would paint a solid buy signal with another close above the trigger line today at 3780. 
• Also supporting the bull case, the market has closed above the 5-EMA for two sessions, and today could be the third. But the 21-day line (mean) remains a hurdle at 3857.
• The Algo buy signal does not tell us how far the rally takes us, but we could at least target the middle or top of the down channel.