Pre-Market Outlook – Update (Charts Added) 5/12/2021

Pre-Market Outlook – Update (Charts Added) 5/12/2021

11:35 am EST - S&P Futures 4082

It has been quite the battle this morning, and bears have managed to tip prices below yesterday’s low and the overnight spike low from the CPI report. The tempo is unusually labored thus far. 

Also, the S&P 500 and NASDAQ 100 are breaking their trendlines at current prices. The S&P 500 is trading below the balance area low we identified yesterday at 4115. Notably, the day is not over, and things can look completely different by the close.

At current levels (and we don’t know if participants will accept prices here quite yet), the Dow (which had kept the stock markets propped up until the last minute) is now trading below its 21-day line. That means all four major indices are now operating in unison (S&P 500, Nasdaq 100, Dow Industrials, and the Russell 2000), below this key reference line. 

Also, this morning, one of Sentiment Trader’s risk-off models has flipped to defense. Again, all of this is preliminary but helps build the case for the intermediate, 18-month cycle peak we have been expecting.

There is a lot of chatter about ending unemployment benefits early so that workers are motivated to accept an apparent plethora of available jobs (at meager wages). Chatter about the Fed being way off the mark on inflation containment causes market participants to anticipate a change in Fed policy, no matter what the current policy statements may be.

Think of current Fed policy as the punch bowl at the party. Everything changes if they take the punch bowl away. Having said that, the longer they wait, the worse it will be for the markets when the bubble bursts. 

Of course, this assumes that the Fed does not want inflation. That is a huge assumption for a Federal Reserve that has cozied up to the U.S. Treasury – which now has a massive debt (and wants to add $4 trillion more). Believe this – either that debt has to be monetized (inflated away), or the U.S. will risk a default, either outright or by robbing entitlements such as Social Security or Medicare.

As I indicated yesterday, I have been experiencing that vertigo feeling lately – an uncomfortable feeling that we are not on solid ground and our country has lost its footing. I still feel like I am working on the top floor of a tall building. Everything looks fine working on my floor, until I look out the window and it is a long way down.

A.F. Thornton

AF Thornton

Website: https://tradingarchimedes.com

A.F. "Arthur" Thornton is an expert in logic, risk/reward quantification, market fractals, pattern recognition and asset class behavioral analysis with 34 years devoted to developing algorithmic and quantitative trading systems. In addition to trading his own capital, Mr. Thornton designs custom algorithmic and quantitative trading systems for a small and exclusive group of exceptionally qualified traders.

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