Well, the downside leg is starting to play out. Core PCE came in hotter than expected and the market remains offered on the backdrop of higher odds for a 50 basis point hike. Why is this important? Well, everyone’s worst fear of hiking into a recession might be coming to reality as aggregate demand seems to be dropping off and inflation remains sticky. As a result, investors have a trade-off to make:

1. Buy fixed income yielding > S&P 500 dividend yield and gain price appreciation via bond prices in case recession happens

2. Risk a lower yield but higher price appreciation if recession does not happen

The market has been in a quiet stand-off between the two. However, you have to remember that it’s not a matter of preference for a lot of large instutiions who manage money: it’s a fiduciary responsibility. Furthermore, these people are typically sellers into a down market when things start to go bad. That’s just how markets work.

Now let’s talk about stocks. First, the market rallied yesterday because initially we had NVDA earnings which were OKAY. We faded that, and the market had a squeeze because of a big option put coming in and delta hedging had to happen. Well, look at NVDA now. Failed the combo 13 risk level and sequential 13 at highs. Not bullish.

If we look at the hourly chart of QQQ, we can see that we qualified a downside TDST break (pointed out yesterday and expressed via long puts). No hourly countdowns completed yet and we are 8/13 on the TD Combo. I will update the blog when we complete hourly exhaustion.

The S&P could qualify TD Propulsion low if the market does not start to hold up soon. That would target 377 in SPY. I am a little more agile than that and believe that even in a down market, it's good to play on the long side for reversals but we are not there yet. Maybe the TD Line at 391.19 projection will be a decent spot later when combo 13’s on the hourly complete.

And finally, I’m going to re-up this chart. I think it speaks greater volumes than me explaining what range expansion means.

Best of luck,

P