Interim Update – 10/12/2022

Good Morning:

Yesterday, the Founders Group covered their remaining short positions at 3632.50 – preferring a neutral stance going into today’s publication of the September Fed Minutes and the wholesale Inflation numbers, not to mention tomorrow’s retail inflation reports. One concern is that the 3600 level has been sticky and perhaps even supported by the Fed Plunge Protection team.

At this point – it is a bit of a crapshoot trading into these reports, particularly the CPI report on Thursday. Today, the options market is pricing in a 50-point range plus or minus yesterday’s close at 3616.13. Tomorrow’s range is wider; we will report on that after today’s close. Interestingly, today’s range is not greater than the “normal” range we have been experiencing when no economic reports are due.

If we bounce here, I expect behavior more like June before another leg down. It is still fine to use the 3655.25 buy stop for short positions if you remain bearish.

The market had a lot of good reasons to capitulate yesterday considering European events but didn’t. We can never know the future, but when the market stops falling on bad news, a low could be closer than we think. Also, the market has tended to rally when the VIX approaches 35 lately.

Inflation is already expected to be high, so it would take an appreciable miss to drive prices lower – and I don’t rule that out. I do not have strong evidence in either direction. There will be time to reposition later this week whatever the market decides to do.

The Key Levels remain the same as in the previous table, adjusting slightly for moving averages.

A.F. Thornto