Hi YXI friends,
There are expectations of a “hawkish cut” in today’s FOMC.
I will go through the FOMC preview in Section 4 today, but a “hawkish cut” refers to the Fed cutting but threatening that they won’t keep cutting forever (just like the last FOMC). After all, they are “data dependent”.
However, I argue that regardless of the tonality of tonight’s Press Conference (I will be covering it on Seeking Alpha News), the Fed is already firmly on a dovish easing path.
First, we had the rate cuts, then the relaxation of bank capital requirements, and finally the end of QT. In the not-too-distant future, we may see QE once again as interbank lending liquidity thins.
Someone has to buy these Treasuries.
It may be prudent to ignore the Dot Plot and Economic Projections from today’s FOMC, except to observe how divergent the FOMC members’ views are. This is because we have suffered a data vacuum due to the government shutdown since the September FOMC. The projections are simply blind guesses about the future - yours and mine are as good as theirs.
Table of Contents
DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
To receive unlimited access to our daily machine-learning signals, market technical breakdowns, and in-depth asset profiles, unlock your Premium Membership using the button below.
Please check out our glossary for explaining the acronyms, financial terminology, and economic data.
1. YXI Dashboard
Dashboard
Risk assets were generally bullish on Tuesday, especially crypto.
Previous Day Price Action
Macro Assets
Crypto rallied massively after the NY market open, with ETHA reaching almost 10% intraday.
Magnificent-7s, PLTR, COIN, HOOD
TSLA, the high beta name among the Mag-7s, also enjoyed a post-open rally, with GOOGL and AMZN also closing above +1%.
Sector ETFs
XLE sold off again after the open. There seems to be sustained weakness.
2. Treasury General Account, SOFR-EFFR
TGA Closing Balance
The TGA balance sits at $880 billion, down from the recent high of $956 billion. That’s nearly $80 billion USD of liquidity released in the past week, a positive tailwind for the market.
SOFR-EFFR
The result? Equities stabilised near the all-time highs, and crypto found a bounce.
The SOFR-EFFR spread is at 6bp, well below the month-end spike of 24bp. It suggests that the liquidity in the interbank lending markets is no longer extremely tight.
3. S&P 500 and Nasdaq (SPY & QQQ)
SPY
While liquidity now appears more favourable, I am concerned about the latest momentum stall, which could open the door to market weakness post-FOMC.
QQQ
If we get a sell-off after the FOMC, QQQ should find strong support in the $600-605 region.
4. FOMC Preview, Projections, Treasury Yields, TLT, USO
Labour Ahead of the Fed
While we eventually received the September Nonfarm Payrolls, the figures are likely very unreliable. We apparently added 119k jobs while unemployment crept up to 4.4%.
I would agree at large that the labour market is not yet in an emergency period. However, the overall trend is certainly unpromising heading into 2026.
PCE ahead of the Fed
The Headline PCE and Core PCE are both just under 3%, still with a distance from the 2% target.
The consensus is that goods prices have risen due to tariffs, while inflation in services and housing has come down.
Truflation
Truflation provides daily on-chain data on the US inflation levels, powered by consumer and spending data across the US. Truflation suggests inflation has risen over the last 6 months.
FOMC Dissents?
Whatever the Fed decides tonight, there will be dissents. If the Fed cuts 25bp (the most likely scenario), there is likely at least one person who votes for a 50bp cut and one person (and potentially multiple) who votes for no change.
Both the hawkish and dovish camps have many justifications - such is the nature of the current economy. Hawks will point at the elevated inflation levels that are not guaranteed to return to the Fed’s 2% target. Doves will cite labour market and liquidity concerns.
After today’s cuts, the Fed is roughly at the upper end of the estimated neutral rate (0.5-1% real rates). From here, the Fed could do intermittent cuts as it receives more data.
FOMC Projections
We utilise the Fed Funds futures market to gauge market expectations for future FOMC interest rate decisions.
US Treasury Yield Curve
The yield curve has steepened in the past week.
US 30Y Yield
The long-end yields have continually moved higher as the market prices a greater chance of a December cut.
About 1/3 of the yield rise is explained by rising inflation expectations - the market worries that cutting rates now could induce an inflation resurgence. The other 2/3 is explained by increasing term premia, as the market worries about the impact of a higher budget deficit on the creditworthiness of the US Treasuries.
Meanwhile, technically, yields could move higher from here, especially if the Fed again warns not to take rate cuts for granted.
I have updated my chart counts to suggest a potential a-b-c rally from the October low. Wave (c) could target 4.84% before reversing.
Overall, we could have seen a leading diagonal down between May and October to complete a larger degree wave circle-i, while the current bounce is a larger degree wave circle-ii.
TLT
TLT could find support at the 200-day MA next before reversing.
USO
I remain bearish on USO with a target in the low $60s.
5. Crypto
ETH is updated every Monday. COIN is updated every Tuesday. HOOD is updated every Wednesday.
BTC
Bitcoin has stalled in momentum and we could get a retrace towards $88 first. But overall the price technicals do appear in line with the potential wave iii path.
HOOD
HOOD is moving in wave c of (a), which could target $150 next.
6. Gold
GLD
GLD consolidates sideways but appears favourable for the wave circle-iii path.
7. Large Cap Equities & ETFs
Apple: AAPL
AAPL continues retracing in wave iv. It could touch $273 for a deeper pullback.
Amazon: AMZN
AMZN has tested the 50% retrace of wave i. There is room for a deeper pullback into the $219-223 region. However, my overall bias is a wave (v) uptrend in the coming months.
Alphabet: GOOGL
GOOGL is hanging there, not budging for a wave iv pullback yet. I continue favouring a retrace towards $270 before making the final wave v attempt.
Meta: META
META could be turning down in wave v here, as the 200-day MA rejected it. However, I don’t expect a straight road down, given the recent volume of buying interest - it could be hotly contested battle. We wait for the initial selloff to confirm.
Microsoft: MSFT
MSFT is about to enter a resistance area with heavy volume under the 50-day MA. I am not currently expecting a big pop here. I want to see the i-ii setup form more firmly first.
Nvidia: NVDA
As suggested by our ML model going risk off, NVDA has been sluggish in this recent bounce. The 50-day MA appears, surprisingly, a bit of a hurdle. This adds to my thesis we are seeing a corrective wave-B bounce here.
Tesla: TSLA
TSLA’s strong intraday move did not exceed the top of wave i. This puts wave ii still on the table, with a potential target near $410.
Palantir: PLTR
PLTR stalls at the high volume region here. I don’t rule out a pullback here and do think that this could be a wave B bounce.
Semiconductor: SOXX
I maintain a wave v target of $330+.
8. Notable ETF Flows From the Previous Day
Recent Notable Flows (% of AUM)
The flows are expressed as a percentage of the AUM prior to the flow.
Ticker | AUM ($M) | Flow % AUM | Flow % AUM | Flow % AUM |
|---|---|---|---|---|
USO | 1024 | 12.66% | 10.11% | 20.09% |
BOIL | 374 | -10.90% | -25.69% | -36.47% |
BITX | 1688 | 8.02% | 5.57% | 9.76% |
Please help me improve the service with your immediate feedback. Thank you.