Powell Aftershock

Well it wasn't enough for it to get down to 2740 to adjust to the new Fed chair.  Even with bond yields going lower on the day, the S&P lost another 1%.  In a straightforward manner, he implied that his put strike price is much lower than Bazooka Ben or Dovish Yellen.  He has bought into the inflation economic boom hype.  As I mentioned before, March is loaded with economic data and meetings that could scare the bulls.  Usually, ahead of the uncertainty, the market sells off, especially when it is this skittish. 

If Powell doesn't back track from Tuesday's statement, that tells you that he isn't as sensitive to stock market volatility as his predecessors.  That would be a gift for us traders, as the central bank put has made trading S&P futures much harder than in the past.  It would be refreshing change to see a Fed chairman who doesn't placate the stock market when it has a tantrum.  But its still too early to tell, and his March meeting will provide us a lot more information than the Humphrey Hawkins testimony.

This week, I played it too conservatively, and totally missed the screaming short at 2780-2790 sell zone.  I believed the media hype about Powell being Yellen 2.0 and that made me scared to be short of his Congressional testimony.  It seems like I wasn't the only one afraid to sell ahead of the event.  Anyway, I missed the short, and if somehow the market trades higher by Monday up to 2750-2760, I will look to put on a swing short for a move back down to 2640-2680. 

From a timing perspective, the peak of the fear should be late next week, perhaps next Thursday.  It depends on how the bond market behaves.  If the 10 year yield goes back above 2.90%, the S&P will have a hard time rallying and will probably drop below 2700.  The bond market is driving the equity train right now, so that is the market to watch to get a read on equities.  It should be like this until the FOMC meeting in 3 weeks. 

SPX 2700 is fairly strong support, and with first day of month inflows, it would not surprise me to see a rally today, perhaps back up to 2730.  I would be surprised if we rally above 2740 today.  But this is a crazy market, so anything is possible, and the bulls are that stubborn, so you can never rule out an irrational rally.  On the downside, you are looking at 2680, which was the bottom post Fed minutes last week.   Below that, 2640 area near the bottom post CPI panic a couple of weeks.  It would be quite shocking to see it bust through that 2640 level, but it could be possible if the 10 year goes above 3.00% and stays above it for a few days.  But I am not that bearish on bonds, so I would fade a move in both stocks and bonds if we approached that 3.00% level.