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Futures may look a little positive at the open today, but the momentum is all over the board, and technical signals are certainly mixed.

The set-up for the week is anything but clear. The bond market is closed Monday. But the stock market remains open. And the biggies to watch this week are probably PPI and CPI released on Wednesday and Thursday respectively. These key indicators should give more insight into the Fed’s ongoing campaign to kill inflation.

Many analysts are spending lots of time focused on the Fed right now. We’re back in the ‘bad news is good news’ cycle, as bad news would suggest the Fed can loosen rates sooner rather than later. But so far, Jay Powell has been pretty resolute about killing record inflation. And, as strange as it may sound to the layman, part of that is forcing unemployment higher. (So yes, you read that right – job losses are part of the goal right now).

Of course, this is a problematic balance to strike. By the time jobs are going away, it’s because the economy is typically in contraction. And, despite the recent jiggering of the definition of recession, two quarters of negative GDP (the long-accepted ‘street’ definition of recession) are probably already underway. This isn’t really to specific goal of the Fed — to cause a recession — but it’s darn hard not to do it in this situation. So a ‘soft landing’ of economic slowdown without recession is unlikely at this point.

Here’s where the markets get confusing. Many would suggest things should drop during recession. But that’s not necessarily a requirement at all. Markets are typically ‘leading’ indicators, so they are often ahead of the economy. And herein lies the challenge.  Many of the market’s signals already suggest we’re over-sold and looking for a point to turn around and recover from.

The technical signals this week are a tough read… again.  And that’s because the suggest things should bounce back up a bit, in spite of all the other negative sentiment out there. Frankly, there is little positive momentum to grasp onto. But the signs are still there.  The VIX is pretty high, trading ranges are at the bottom of multi-week trading periods, and last week looks a lot like a re-test of June lows, which would suggest a double-bottom.

Of course, the trend is negative. So betting on a reversal is a more dangerous gamble. Trying to guess both the PPI and CPI numbers this week – or perhaps even more challenging, the markets reactions to those reads – may as well be a coin flip.  Still, the signs are there. It’s possible we find footing and move back up some.

Last week’s volatility is the bigger problem. Markets attempted a rally and failed. If the same were to occur this week, it would likely be a bad sign suggesting more selling to follow. But for now, there looks to be about a 50/50 shot at putting in a small rally towards SPX 3850/4000 level building.

Fingers shall remain crossed!

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