Stock futures are in the red this morning as investors head into a holiday shortened trading session. Bearish comments from Federal Reserve member James Bullard have cautioned bulls as to the likelihood of a Fed “pivot”. Bullard says the Fed remains committed to bring inflation down and has only seen minimal effects from the rate hikes so far. Which means he expects the Fed to continue rate hikes to combat sticky inflation.
The widely recognized 2/10 yield spread widened even further, signalling a US recession coming. The $USD is catching a bid and bouncing off of important technical support levels. The Fed really only started tightening monetary conditions 9 months ago so the lag effect will take sometime to make its way through the financial system. Retail Sales numbers reported Wednesday showed continued strength from the consumer. Labor markets remain strong and only recently we have seen companies begin to cut employee headcount. We believe the Fed has not seen enough of a growth impact from rate hikes and inflation remains too high to even think of a slowing down of rate hikes.
- Tesla Inc – $TSLA price action shows a bearish downtrend. Continuing its slide from the previous 6-7 weeks, we see the down move increasing in velocity as it is breaking down from a “bear flag” technical pattern. These patterns are highly reliable and are continuation patterns in the context of a downtrend. We would expect potential downside of $20-40 from yesterday’s closing price of $186.92. We are short Tesla and hold weekly Puts
- S&P 500 – $SPY price action is showing weak given this mornings comments from the Fed member Bullard. These comments are in contrast to the latest bull market thesis of a Fed pivot. With stock markets gaining 10-12% since the latest CPI report, we see risk to reversion to the downside and consolidating some of or possibly all of these gains. We hold Nov 22 and Nov 29 expiry $SPY puts.