NVDA saved the market yesterday posting over an 8% gain on the day after CEO of the company Jensen Huang said there is "incredible demand" for the chipmakers. Inflation data showed relief in CPI and PPI this morning and has likely set the tone for the rest of the week.

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Retail is now heavily short SPX and GU, but they are long NASDAQ, DOW, RUSSELL and Gold. More of the same mixed sentiment coming from the crowd today.

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Heavy selling on the retail side for the S&P 500 index. COT does remain steady, but traders might have decided that the tech market looks better than the broader index.

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The trend lower may finally continue after this month's report. Inflation fears have probably subsided for the most part now that CPI y/y is only 0.5% away from it's 2% Fed target.

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Good morning ☕️

- Nick

Gold is flying high on rate cut expectations now pricing in a potential 50 BP cut...

Trailing stops and chilling. EZ Friday!

- Nick

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Keep this in mind when going into next week. More heavy buying of the yen and dollar, heavy selling on NIKKEI, USOil and many currencies other than dollar. Slight bearish readings on SPX and NAS, buying on DOW and RUSSELL. SPX and DOW near all time highs as we approach Fed meeting next week.

May be bullish leaning going into Wednesday's Fed rate decision. Odds are 49/51% on a 50 bp or 25 bp cut (essentially a toss up). Thinking that a 50 bp cut would actually be more bearish because it indicates the Fed needs to play catch up on saving the jobs market. 25 bp means that the Fed is not as worried and could be perceived as bullish.
-Frank

After checking the Fed watch tool, now the majority thinks we are cutting by 50 bp. That's not a good sign. That could mean investors think the Fed waited too long to cut rates and the job market is at a greater risk of recession.

Small caps are still favored to the bullish side by the EdgeFinder due to the increased chance of a greater interest rate cut than originally expected. US indices could be bullish going into the rate cut decision, but cutting by 50 instead of 25 basis points is not necessarily a good sign.

This shows that the Fed might have been too slow to cut and they need to step in to save the jobs market. The put/call ratio is neutral with AAII sentiment declining each week for the past four weeks. This is seasonally the worst month for small caps as well suggesting an average of a 1.52% decline.


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Tech stocks hit resistance around a falling trend line on the 1D timeframe and is looking to break above. Right now, it looks like we could be setting up for a potential reversals, but it depends on how the market closes today.

There are concerns over China's economy slowing down and hurting demand for business in the tech and energy market. This is on top of an heavier than expected Fed rate cut and a reversion of the yield curve. It's impossible to tell if a bearish move is coming, but it does seem like the upside is limited as chip stocks will have a harder time justifying all time highs on the NASDAQ again.

NASDAQ
US indices climb this morning in premarket trading as retail sales roll in. It seems that markets may be bullish going into the Fed rate decision tomorrow with mixed retail sentiment. Retail m/m sales beat expectations, but Core retail sales came in lower than expected. Not really much of a reaction from this data since most of the volatility is likely going to caused by tomorrow’s rate cut.

S&P 500
SPX touches near all time highs again which seems likely to test during today’s session. Upside may be limited, however. Analysts are still calling for a 50 basis point cut on FOMC tomorrow with a 67% chance that it will happen according to the CME FedWatch website. Any cut greater than 0.25% could indicate that the Fed has not acted quick enough to save the economy, specifically the jobs market. Although rate cuts are going to devalue the dollar, it doesn’t necessarily mean that the stock market is going to be bullish.

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Gold is no longer bullish on the EdgeFinder after hitting all time highs again this morning. This neutral score may not last for long, however. Gold prices could definitely be overextended in the short run, but there are many reasons for the metal to continue to outperform for the rest of the year.

A harder cut from the Fed would likely indicate a weaker US economy and dollar. Not only would the 50 bp cut make gold more attractive, but the narrative around this cut is likely pointing towards an economy at risk of a recession.


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Gold
While stocks may be entering into the last leg of their rally this year, gold seems like a better trade than the US indices. Gold is outperforming the NASDAQ this year, and is up 25% versus 18% for the tech index. This will likely continue in Q4 and probably next year. If we do end up seeing a 50 bp cut tomorrow, gold will probably be bullish. If the metal pulls back, some levels of support for long setups could be around $2,530 and $2,460.

FOMC day gameplan!

25 bp hawkish cut: I think this is the least likely scenario, as stocks and gold have rallied significantly leading into this event expecting a dovish fed. However, with a dovish expectation largely priced into the market already, I think this poses a downside risk skew in the case we get a surprisingly hawkish fed. This would be a very bearish reversal for stocks, gold, and bonds.

50 bp hawkish cut: Markets are actually expecting a 50 bp cut this week - but could be surprised by a large initial cut followed by cautious guidance from here. In this case, the stock market and gold could go sideways to down, as the market rally only continues if we get consistent rate cuts from here.

25 bp dovish cut: In my view, this is the scenario I think will happen. It's possible the fed will cite progress in inflation, mention slowing (but not crashing) labor data, and issue a bite sized rate cut to kick things off. I think in this situation gold and stocks would pullback a bit, setting up nice long term buying opportunities. This would be a not too hot, not too cold scenario that signals the feds willingness to cut rates, but believes they are not too behind the curve.

50 bp dovish cut: What the market thinks is most likely. In this case, the fed would start off with a "jumbo" rate cut, and signal that they think they can afford to do multiple meaningful cuts due to their restrictive current policy. Historically however, we need to be aware that IF we see an acceleration in economic slowdown, this would quickly look like the fed is "behind the curve" and could cause some fear. However, as long as economic data remains healthy enough, this would be the most bullish scenario for stocks.

- Nick

My watchlist for the rest of this week / FOMC:

Silver: bullish around $29.80 an ounce
Russell2000: Bullish around 2100, or on a breakout/retest of 2220

USD: Neutral! Bullish above 102, bearish below 100.70. Watching for bullish setups on USD/CAD

- Nick