MBCC Trading Highlights 14th September - US CPI dashed all hopes of a dovish tilt...what's next?

1)S&P 500 – the CPI ruined the market’s dovish “hope”! The Fed is NOT done yet...

The market had rallied 5% since last week, on hopes once again, that the Fed will be about to pivot. This debate has been the key reason why the market always rallies and then gets disappointed. As we have said, inflation is just too high still, for the Fed to stop now. Our thesis has been that even though the mom and yoy may be lower than before, it is still far too high for the Fed’s 2% target. It is not like past times when they would be able to print through any problem.

As you can see above, the market rallied all the way to 4150, hitting resistance, and it really had to break > 4200 to confirm a low was in place. After the CPI report it has given up all those gains and has now fallen back down to 3895 key level. The bulls need to hold this level if they are to take this market higher. They need to get back above 3955, but if it fails here at 3895, we can fall back down to 3800 and then 3650! What is also driving this market viciously up and down is the QUADRUPLE witching expiration this Friday.

As we had mentioned we had moved from deep negative gamma territory to positive, which meant the market makers bought all the deltas they needed, but as the market broke down, they would need to sell. The long gamma capped the market > 4200, making it a great opportunity to sell. And sell, they did, as it was a violent move down as the market closed 4% on the day. It is ALL technical and this is what is driving the market as they buy high and sell low. The key points are around 4000-4200 and this is what is driving price action in the large cap names. This is not to say the move was not “correct” given the US CPI print. It is important to notice the traps. As our readers know, we maintain our bearish stance on the markets, the real pain is yet to come.

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