10/12/26 - Weekly Market Prep & Analysis

Before we get into the week, I want to thank everyone who reached out with well-wishes after my surgery. Recovery has taken longer than I expected, and a few challenges have required more attention than I originally planned. I am powering through it, but I will probably remain around in a limited capacity this week and check in whenever I can. I appreciate everyone in the community who has reached out, and I appreciate the patience while I work my way back to normal.

Even with me being out for roughly half of last week, we still shared day trades that gained around 10%, 15%, and 30%. I mention that because it reinforces something I have talked about for years: selection is more important than frequency. We did not need five straight days of trading, and we did not need to manufacture opportunities while I was unavailable. We prepared, waited for something worth trading, and took what the market gave us. Considering the environment we are moving into, I would rather reinforce that habit now than convince anyone that being active every day is somehow the goal.

This week gives us considerably more to work through. U.S. equities will trade normally on Monday, but the cash Treasury market will be closed for Columbus Day. Wednesday gives us September CPI at 8:30 AM ET and the Fed's Beige Book at 2:00 PM. Thursday gets busy with PPI, Retail Sales and Weekly Jobless Claims all at 8:30 AM. Friday brings Import and Export Prices at 8:30 AM, Industrial Production at 9:15 AM, and monthly OPEX. We also have earnings season beginning to pick up, with several of the large banks reporting and TSMC giving us another look at the semiconductor and AI side of the market.

Monday being a bond-market holiday is worth remembering because we have spent the last month discussing how much influence Treasuries have had on equities. Stock futures and equities can still move, but we will not have the normal cash Treasury session alongside them. If equities make a large move Monday, I am not going to pretend that the bond market confirmed it when a large part of that market is closed. I can still trade a setup if one presents itself, but I would rather carry that context with me than read too much into one part of an intermarket relationship while the other part is missing.

CPI becomes the first major pressure point on Wednesday. Inflation remains above where the Fed wants it, and energy prices have complicated the picture again. Current estimates have September headline CPI somewhere around the mid-to-upper 3% range year over year, while traders have become less convinced that the Fed needs to follow September's hike with another move immediately in October. A hotter report can bring some of that pressure back quickly, especially through the bond market. A cooler report can give yields room to fall and create another potential tailwind for equities. Neither outcome tells me what $SPY has to do, but both give us a different set of pressures to work with.

Thursday adds another layer because PPI and Retail Sales arrive at the same time. PPI gives us another look at inflation further up the production chain, while Retail Sales tells us how aggressively consumers are still spending. Those reports can easily pull the market in different directions. Strong sales can support the growth picture while also giving the Fed more room to remain restrictive. Weaker sales can relieve some pressure on rates while raising questions about growth. This is exactly why I prefer the headwind and tailwind framework instead of trying to label every economic number bullish or bearish before price has even reacted.

Weekly Claims will arrive alongside them. Claims have remained extremely low, with the latest report showing 197,000 initial filings, even while other employment data has shown hiring slowing. That combination tells us companies have not become particularly aggressive with layoffs, but they have become more cautious about adding workers. Going into the midterms, that distinction also feeds directly into the conversation around how Americans actually feel about the economy. Unemployment remains low, but hiring has slowed, job switching has become more difficult, and inflation continues eating into purchasing power.

This is also where the sociopolitical backdrop becomes increasingly difficult to separate from the macro picture. We are only a few weeks away from the midterms, and affordability remains one of the largest issues surrounding the election. Energy sits directly in the middle of that conversation because higher oil and fuel prices hit consumers immediately while also feeding inflation expectations and Treasury yields. Over the weekend, the administration announced an effort to halt attacks on Russian and Ukrainian energy infrastructure, while tensions in the Middle East continue threatening supply. I am not interested in handicapping the politics of either conflict. I am interested in what those headlines can do to crude oil, inflation expectations, bonds, and eventually equities.

If an energy headline sends crude lower, reduces inflation pressure and pulls yields down, I can identify the potential tailwind. If another geopolitical escalation pushes oil higher, inflation expectations rise and yields get more aggressive, I can identify the headwind. The political headline itself is not the trade. I want to know how the market translates it.

That brings me back to the article I wrote last week about Treasury volatility because I think people are still misreading some of the charts circulating online.

The VIX and MOVE Index both deal with expected volatility, but they are not the same measurement. VIX uses S&P 500 options to estimate expected equity volatility over roughly the next 30 days. MOVE measures implied volatility in Treasury yields using options across several maturities, including the 2-year, 5-year, 10-year and 30-year. The two indexes use different methodologies and different units, so comparing the raw number of MOVE directly with VIX exaggerates the difference between the two markets. A MOVE reading above 100 beside a VIX around 15 does not mean bonds are experiencing six or seven times more volatility than equities.

VXTLT gives us a better comparison because Cboe applies a VIX-style methodology to options on TLT. Earlier last week, VXTLT actually traded above VIX, something we do not see very often, but the two were still sitting in the same general mid-teens neighborhood rather than showing the enormous gap implied by comparing MOVE directly with VIX. The signal I take from that is not that the bond market knows about some hidden catastrophe that equity traders have completely missed. I take it as evidence that traders expect more movement in long-duration Treasuries than they have gotten used to, while equity volatility remains relatively subdued.

I want to emphasize the word movement because volatility does not tell us direction, as I have said many, many times in my livestreams and lessons. Higher Treasury volatility does not mean yields have to go higher. It means the path for bond prices and yields can become more aggressive in either direction. A hot CPI report can push the 10-year higher quickly, while a cooler report can create a violent reversal in yields just as easily. The bond market is pricing a wider range of possible outcomes, not guaranteeing one of them.

This fits directly into the environment we have been discussing for weeks. The 10-year has climbed back above 5% and recently traded around 5.3%, while the 30-year has pushed even further. Rate-option volatility has increased alongside those moves. Reuters also points to mortgage hedging, heavy corporate issuance and a higher term premium as additional pressures underneath the Treasury market. None of those require yields to move in a straight line. They give us more reasons for the moves to become less orderly when something changes.

For equities, faster changes in yields mean the headwinds and tailwinds can change faster too. If the 10-year falls ten or fifteen basis points after CPI, growth stocks suddenly have a very different environment than they had an hour earlier. If yields reverse and push sharply higher, the discount-rate pressure comes back. This is one reason I do not want anyone looking at VIX around 15 and assuming the entire market is calm. Equity options are pricing one environment while the rates market is dealing with considerably more uncertainty underneath it.

We have already seen this relationship play out. Equities have continued making progress despite long-term yields moving to levels we have not seen in decades. The current bull market also reaches its four-year anniversary this week, with technology and AI-related companies still doing a large amount of the work. Earnings expectations remain strong, but market concentration and higher yields give us two very different forces pushing against each other.

Now we can bring all of this back to the $SPY ( ▲ 0.3% ) chart.

The Daily chart gave us another all-time high last week, and price reached that high near the upper Rangefinder Anchor Rail. Using Friday's Close, the upper Anchor Rail currently sits at 781.86, with the Pressure Rail above it at 783.60. We just spent several weeks talking about whether buyers could get through the 775 area, and they eventually did. I am not going to ignore that simply because there is another level above us now. Buyers did what they needed to do, price moved into new highs, and the next question is whether they can continue making progress through this upper Rangefinder area.

I would treat 781.86 through 783.60 as the next larger upside range. If buyers get more aggressive and clear the Anchor Rail, I want to see whether they can continue through the Pressure Rail. If they repeatedly push into this area and cannot make progress, I will start looking at whatever headwinds are present at the time. If they break the range and give us a reasonable retest, I have no reason to fight the continuation simply because price is at an all-time high.

The lower Anchor Rail currently sits at 775.28, which gives us some nice continuity from the last several plans. The 775 area spent weeks acting as something buyers needed to get through. Price has now traded above it, and the Rangefinder places an Anchor Rail in almost the same area. I want to see what happens if price comes back. If buyers remain aggressive enough to keep price above it, the larger structure remains intact. If sellers get through it, I will start paying much closer attention to the lower part of the range.

The 65m chart gives us another piece to work with. There is a possible inverse head and shoulders developing across the recent lows. I do not like placing much confidence or weight in patterns, and I am definitely not taking a trade simply because I can draw a neckline and put a name on the chart. I am keeping it in mind because it helps illustrate the structure that has developed around the lower range, but where price has actually traded is much more important to me.

The Friday-close Pressure Rail currently sits at 773.54, but I am going to give the area a little more room and call roughly 772.50 the point where I begin using the phrase “shorting into the hole.” Month-to-date volume is heavily concentrated around 772.50, second only to the 770 Mental Pivot in terms of volume by price. We already know price has spent a considerable amount of time in this part of the chart, and we have seen repeated reversals from the broader area.

For practical purposes, everything underneath roughly 772.50 is a dangerous short until there’s some momentum.

I am not saying price cannot break underneath it. I am saying I do not want to initiate shorts there simply because the market has already moved lower. If sellers push price down several points and I missed the better entry higher in the range, I am not interested in chasing them directly into one of the largest month-to-date volume concentrations on the chart. We have too much evidence that price can reverse aggressively down there, and Treasury volatility gives us another reason to respect how quickly the macro pressure can change.

The 770 Mental Pivot sits directly underneath it with the largest volume concentration for the month. If price trades into that area, the same logic applies. I would rather see sellers demonstrate actual control beneath it than decide beforehand that a break of one candle means another ten points lower. If volume begins developing beneath 772.50 and 770, sellers remain aggressive, and we have concurrent macro headwinds pushing in the same direction, then the structure has changed enough for me to reconsider.

If I get an opportunity to short, I would still rather find weakness closer to the top of the range. A failed attempt into 781.86-783.60 gives me more room and a much better location than chasing weakness after price has already moved into the hole. If CPI comes in hot, yields move higher and buyers cannot make progress around the all-time-high area, I can start looking for those pressures to set price in motion lower. If the same report pushes yields higher but $SPY refuses to leave the upper range, I become more skeptical that the headwind is strong enough to dictate price.

The possible inverse head and shoulders fits underneath that approach rather than replacing it. If price continues holding above the heavier volume around 772.50 and 770 while buyers remain aggressive on the recoveries, I will keep the formation in mind. If sellers break those areas with volume and the macro environment begins deteriorating at the same time, I have no reason to defend the pattern. Patterns do not override price, volume, the Rangefinder, or what is happening in the broader market.

There is another reason I am emphasizing volatility this week, and this one has nothing to do with chart patterns:

We are getting closer to the midterms. Yea, I know.

I have been warning for months that the midterm cycle can bring larger ranges as political uncertainty increases. That does not mean midterms automatically create a selloff. Historically, the period around midterm elections can become more volatile as markets work through uncertainty around control of Congress, taxes, spending, regulation and fiscal policy, before some of that uncertainty disappears after the election. Right now we have the additional combination of a relatively low VIX, elevated Treasury volatility, high oil prices, another Fed meeting approaching and equities sitting near all-time highs.

Many of you were here with me in November 2022, and you probably remember why I take this seriously. During that midterm period, we had a morning where $SPY moved roughly 20 points in premarket. The catalyst was CPI, not the election by itself, but that is exactly the point. Political uncertainty, inflation, Fed positioning and crowded trades were all sitting on top of each other, and one piece of information was enough to create an enormous repricing before the cash session even opened.

I do not expect 2026 to repeat 2022 candle for candle because the environment is very different.

In November 2022, equities were deep into a bear market. Inflation was still running above 7%, the Fed was moving through one of the most aggressive hiking cycles in decades, and equity volatility was considerably higher than it is today. The market was already defensive before that CPI report arrived.

Today, $SPY is sitting near all-time highs. Inflation is nowhere near 2022 levels, even though it remains above target. The Fed has only recently returned to raising rates, and VIX is sitting around the mid-teens rather than the elevated levels we dealt with during that 2022 period. Corporate earnings also remain strong, while AI-related investment continues supporting some of the largest companies in the index.

The rates side is arguably more uncomfortable now. The 10-year is above 5%, the 30-year is near levels we have not seen in decades, Treasury volatility has increased, and government borrowing remains part of the conversation. In 2022, most traders were staring directly at the Fed because the Fed was driving the tightening cycle. In 2026, we also have to watch what the long end does independently of the Fed. The market can tighten financial conditions without waiting for Warsh to do anything at the next meeting.

So when I bring up that 20-point premarket move from 2022, I am not predicting another 20-point move this week. I am reminding everyone what can happen when a market gets comfortable right before several sources of uncertainty collide. We are heading toward the midterms with CPI, PPI, Retail Sales, OPEX, earnings, elevated Treasury volatility and geopolitical headlines capable of changing energy prices overnight. VIX around 15 should not convince anyone that the next few weeks have to remain quiet.

This is also why I will continue being selective while I recover. Being out for roughly half of last week did not prevent me from taking profitable trades. I would much rather continue finding a handful of opportunities that fit what I do than return from surgery and start taking every move because I feel obligated to trade. The environment already gives us enough variables. We do not need to add impatience to them.

In summation, I know $SPY ( ▲ 0.3% ) made another all-time high near the upper Rangefinder Anchor Rail. I know buyers finally worked through the 775 area we spent several weeks watching, and I know the month-to-date volume now gives me another important area around 772.50, with the 770 Mental Pivot carrying even more volume underneath it. I know the 65m chart has a possible inverse head and shoulders forming, but I am placing considerably more weight on where price has traded, the Rangefinder Rails, and how aggressive buyers and sellers become around those areas.

I also know that VIX does not tell us everything happening in Treasuries. MOVE and VIX cannot be compared directly, while VXTLT gives us a much better apples-to-apples look and has recently traded in the same general area as VIX. Treasury volatility is telling me to expect a less predictable path for yields, not that yields have to move higher. With midterms approaching, inflation data coming this week, oil responding to geopolitical headlines and OPEX sitting at the end of the week, changes in the bond market can alter the headwinds and tailwinds surrounding equities quickly.

If CPI comes in hot, yields get more aggressive, and sellers push through 772.50 with actual volume developing underneath it, I will be looking for concurrent weakness and whether 770 can hold. If CPI comes in hot and yields move higher but $SPY refuses to break the lower range, I will be paying attention to what tailwinds can set price back in motion toward the upside. If inflation comes in cooler, yields fall, and buyers still cannot work through 781.86-783.60, I will be looking for concurrent headwinds that can set price in motion lower. If buyers clear that upper range and successfully retest it, I have no reason to stand in front of continuation simply because the market is trading at all-time highs.

The midterm environment gives us another reason to respect range expansion, but 2022 is a reminder more than it is a prediction of any kind. We had very different conditions then, and we still watched $SPY move roughly 20 points before the opening bell when the market repriced inflation and Fed expectations. This time we have lower equity volatility, much higher long-term yields, elevated Treasury volatility, new all-time highs and a different set of political and economic pressures.

Preparation gives us a way to handle all of them without pretending we know which one will move first. As always, trade smart. - SP