Morning Notes — Resistance Ahead

We expect the S&P 500 to lose steam as it approaches resistance ahead in the 4100-4200 zone. This has been our target for the Q4 rally that was signaled back in mid-October.  Back in October, there were three technical hurdles in the 4100-4200 range including the downward sloping trend channel (contained the bear market all year), the 200-day moving average and the Volume Weighted Average Price (VWAP) for the SPY. I don’t like to move the bar, but the passage of time has compressed that cluster of resistance to levels just overhead in the 4070-4120 zone, with 4200 marking the top of the summer rally.  The good news is that we see no signs yet of momentum divergence that usually occurs days before an inflection.  The most significant near-term catalysts on the horizon are the November CPI report on 12/13 and the Fed meeting on 12/14. Unfortunately, a lot of dovishness has already been priced into the OIS forward curve when looking at implied rate cuts 24 months after reaching terminal rates.  This measure has moved from ~140bp last week to ~180bp today, and a dovish CPI/Fed meeting might not be enough to push the SPX through 4200. We expect sustained closes north of 4200 may prove difficult to achieve during Q1’23 as well with an increased likelihood of retesting lows in the 3500s.