Markets on Edge: Will NVDA and the Fed Tip the Scales?

E-mini S&P (December) / E-mini NQ (December)

S&P, yesterday’s close: Settled at 6692.00, down 63.25

NQ, yesterday’s close: Settled at 24,879.00, down 215.00

E-mini S&P and E-mini NQ futures failed to hold early rally attempts yesterday, allowing sellers to take the wheel. Although price action worked off yesterday’s late low, it took out the November 7th mark for both indices overnight. Still, things have yet to come unglued, and a little panic may be a necessary shakeout before we get into the middle of the week.

While the anticipation builds for NVDA’s earnings report, released after the bell on Wednesday, the Fed’s December meeting and potential liquidity issues are also keeping the risk appetite at bay. Fed Governor Waller spoke in support of a December cut yesterday, pointing to tight monetary policy as hurting the lower to middle class, and citing that labor fears are more prominent than inflation that is not rising. Tight liquidity conditions have also sparked some fear, after banks borrowed the most on Friday since 2021, from the Fed’s Standing Repo Facility, forcing injections both Friday and Monday.

I believe the Fed does cut in December, and the hawkish tone from the committee has been nothing more than political. I do understand that without economic data, the Fed is driving through a fog, but this was simply its excuse, and it’s beginning to backfire. The market wants to hear more dovish speak from members other than Waller and Miran, which would help things get back on track for a strong finish to the year. There are real labor risks developing, and the Fed is always behind the curve; they need to wake up to the risk in this K-shaped economy, which now sees liquidity stress. If the Fed’s stubbornness and hawkishness do not get walked back, the risks of a December 2018 type sell-off become real when Fed Chair Powell flipped the switch on autopilot tightening in October of that year. For now, this is not a risk, but they must be mindful.

E-mini S&P and E-mini NQ futures are testing support levels left in the path of response on November 7th and last Friday. Price action has the chance to build out a terrific bottom, despite this week’s retest, but it must remain constructive. Most importantly, buyers must defend support at 6655.50-6658.50 in the E-mini S&P and 24,603-24,626 in the E-mini NQ. It will certainly help to begin neutralizing the weakness if price action can rebound and clear major three-star resistance at…