Equities still a tightrope walk

September 16, 2016 12:03 PM

The U.S. equities established equilibrium into lower supports this week. Yet continued weakness below the bottom of the important mid-July through early September trading range congestion (front month S&P 500 Future 2,155) by the December contract still leaves near-term stability a real "tightrope walk." And if it slips below the key lower supports, the next phase is likely to be quite a bit more troubling than a "day at the beach."

We note this for two reasons, with the first being sheer evolutionary trend view technical factors. The second is how that is impacted by still on balance weak late economic data released late this week prior to next week’s the Federal Reserve’s rate decision, projections revisions and press conference next Wednesday.

Goldilocks gets mugged

On the latter, it is important that late last week Goldilocks got mugged by the Fed hawks in yet another display of the Fed’s rampant "normalcy bias." Since the Jackson Hole Hawk-fest, the Fed’s minions have continued to beat the drum on as many as two more rate hikes this year. Hawkish members weren’t going to let silly things like two weeks of serial weak economic data get in the way of their attempt to convince everyone that things are back to "normal," and at risk strengthening much further.

However, with yesterday morning’s extended weak macro influences that hawkish Fed-speak is becoming a bit more of a "rearview mirror" influence. And that data weakness seems to continue offsetting any strength from today’s somewhat stronger than expected U.S. Consumer Price Index. Yet, will the equities maintain their recent balance in spite of that?

Will lower support hold?

As we always want to see the proverbial "proof in the pudding" in the form of the actual market response, whether the December S&P 500 Future can indeed hold the key lower supports like it managed to do into the beginning of this week will be critical. In fact, Monday’s 2,100.25 trading low was right into the bottom of the lower significant 2,105-00 support. There is somewhat of a tolerance at interim 2,070 front month weekly chart congestion. Yet any sustained slippage below 2,105-00 would likely point to a swing back to at least the low 2,000 area, or even much lower levels.

The key consideration is of course the Fed psychology. Many among the Fed’s hawkish minions ignored the previous weak U.S. economic data noted above. However, there still seems to be a “bad news is good news” psychology in place since early this week which has assisted U.S. equities in holding key lower support.

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.