June 11, 2019

Stocks have now cleared the all-important level of 2,900 on the S&P 500. The index just peeked above critical resistance (top red line in the chart below).

Overbought and overextended, stocks are now due for a correction/ consolidation. It would be completely normal to see the S&P 500 fall to retest support at 2,850 here (blue line in the chart below).

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After this, the issue becomes… do stocks explode higher to new highs… or was this entire rally just a dead cat bounce. What happens at that blue line will be the answer.

If the blue line holds… it’s new highs. If it doesn’t we’re going to the 2,600s.

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A lot of this hangs on the Fed, which meets June 18th-19th (next Tuesday and Wednesday). The stock market has rallied based on the notion that the Fed will cut interest rates… AND that doing so is a good thing.

Unfortunately for the bulls… there is the chance that the market interprets a rate cut as a BAD thing… because it would signal that the US economy has rolled over.

Bonds have already suggested the latter situation is the case… the yield on the 10-Year US Treasury has COLLAPSED… suggesting that the real economy is in BAD shape.

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This alone is a problem... but when you consider that Copper, Fed Ex, and other assets that are closely associated with the real economy are saying the same thing (S&P 500 at 2,400s) it becomes REALLY WORRISOME...

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That is of course... unless you're preparing for this with targeted traded to profit from a stock market upset.

On that note...

Best Regards,

Deo Talaverano.

Chief Market Strategist DHF.

George Town. Cayman Islands.