Morning Notes — SPX Support Levels

SPX support levels are in focus as the S&P 500 (SPX) faded from predetermined resistance near 4100 this week.  Intraday levels have the SPX below support at ~3900. The close matters most with sustained levels below 3900 setting the stage for a retest of lows near 3550. Technical signaling and deep oversold conditions back in mid-October had us calling for a Q4 rally into strong resistance in the 4100-4200 range. As time passed, the group of resistance indicators converged into a tight cluster at 4100 and we turned tactically bearish on 12/1 after Powell’s less hawkish speech on 11/30 resulted in a dovish shift in the forward OIS curve. Essentially, the potential for a disinflationary November CPI print on 12/13 was already priced into terminal rate expectations. The 4100 level contains the 200-day moving average, 12 month Volume Weighted Average Price (VWAP) for the SPY and the downward sloping channel that has contained the bear market all year. Those indicators will provide strong resistance in Q1’23 when we expect the index to retrace back to ~3550.  The degree of retracement will depend on incoming macro data, while a break above ~4100 is contingent on a shift in Fed policy.  Note that bond yields tend to peak 1-3 months before a Fed pivot.  Both 10 and 30-year Treasury yields peaked at ~4.25% back in early-November and maintaining levels below ~4% will be important.  Inflation is decelerating, but the labor market remains tight, which means downbeat labor market data should be considered ‘equity friendly’ during Q1. The first major catalyst of the New Year will be the December Jobs Report on 1/6.