Powell ahead

S&P 500 recovered from China uncertainty, keeping right below 4,000 until Williams and Bullard reiterated sticky inflation and high rates views. Reiterated – not brought fresh and unexpected information. Still, stocks and much of the rest declined sharply, and even the 3,960s support was tested. It held, and overnight crawl higher began.

VIX is slowly picking up, market breadth deteriorated, but Russell 2000 isn‘t in capitulation mode. Neither are my favorite Friday mentioned sectors. While I‘m not a raging short-term bull, I acknowledge the very solid medium-term prospects for the stock market rally to continue, especially over the final 2-3 weeks of the year. Markets are welcoming the decelerating inflation, and willing to bet against the hawkish Fed rhetoric in the short-term. Running on borrowed time, but running still.

Note crude oil and precious metals with copper – turning up on yet another China easing rumor. Should it turn out true, it would be powerful, but for now let‘s count with muted, positive effect on the ebbing and flowing real assets. More up than down as the sensitivity to tight Fed rhetoric and moves decreases.

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Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

4,010 will again be a daily stumbling block, but it would be encouraging to reach it on or before GDP tomorrow – then, there is Powell to recover from, his effect is likely to be bearish. Bulls don‘t want to see 3,960s give way. I‘m not yet looking to 4,040 – this will be a tough sideways week regardless of positive seasonality.

Credit markets

The degree to which HYG gets its act together today, will be most telling – as in determining the short-term direction this week Worst case, low 3,940s are second line of support, but I doubt we get there at all.