The Week Went Nowhere. Friday Decides Everything.

The S&P 500 finished last week at 7,719. It started at 7,712. Six points and change, after a 146 point round trip.

That flat number hides a violent week. Tuesday the index fell 55 points to 7,611 as the United States and Iran resumed shooting at each other and oil jumped. Thursday it exploded 81 points higher, the best day in a month, after a Federal Reserve governor suggested rates might stay where they are. Friday it opened at the high of the day and sold off after the jobs report came in at triple what economists expected.

Markets that go nowhere while swinging that hard are not resting. They are deciding. And this week they get the information they have been waiting for. Monday is Labor Day and the market is closed. Then it is quiet until Thursday. Then Friday morning brings the inflation number that almost certainly settles what the Federal Reserve does the following Tuesday.

One Call Was Exact. Two Were Wrong.

Last issue said the market would trade between 7,675 and 7,808. It broke the floor by 64 points and never came within 51 points of the ceiling. That is three weeks running the projected range has been wrong, and it has now missed in both directions. The lesson is not to trade that range. Trade the levels that keep proving themselves instead.

We also said that while the market held the shelf at 7,669 to 7,675, the rally stayed intact. It did not hold. Tuesday closed 44 points below it and Wednesday closed below it again, with the low running 58 points through. Then buyers took it all back on Thursday and the week finished above it. Call that a floor that failed and got defended, not a floor that held. On gold we said 4,495 was a real level. It was not. Gold cut through it and kept going to 4,329, roughly 166 points lower, before turning.

Two calls were right. We said the line that ends the larger uptrend had moved up from 7,303 to 7,454 and was closing in. It moved up again last week. And the euro call was exact. We named 1.1571 as the floor that decides whether August's breakout holds, and the low came in at 1.1571 to the pip, then reversed. The euro is now 56 pips above it.

The Jobs Market Gave Two Opposite Answers in Three Days

On Wednesday the private payroll estimate showed the economy added just 38,000 jobs in August, the weakest month since January. Manufacturing lost 17,000. Professional services lost 16,000. Almost all the hiring came from very large companies.

On Friday the government said the economy added 162,000. The forecast was 53,000. The two reports disagree by 124,000 jobs on the same month. Unemployment held at 4.1 percent and wages rose 0.3 percent. The revisions were the real shock. July had been reported as a loss of 23,000 jobs and was revised to a gain of 21,000, a 44,000 point swing, and June was revised up as well. The story of a stalling summer job market was largely erased in one release.

That whipsawed rate expectations all week. The Federal Reserve meets on September 15 and 16 with rates at 3.50 to 3.75 percent. Coming in, the market put the odds of an increase near 58 percent. On Thursday a Fed governor said that if inflation keeps improving he would support leaving rates alone, and the odds fell to 49 percent. That is what caused Thursday's rally. On Friday the jobs number landed and the odds went straight back to 58 percent. After all of that, the week ended believing exactly what it believed when it started.

One thing did change, and it was not good. The 10 year Treasury yield rose from 4.73 to 4.79 percent, touching 4.818 percent on Wednesday, the highest level since November 2023. The 30 year rose too. What matters is that yields climbed while rate expectations finished flat. The bond market was not reacting to the Federal Reserve. It was reacting to something else, and that something else is sitting in the next section.

The August Shelf Is Gone. Here Is What Replaced It.

All through August, one thick shelf sat directly under this market at 7,669 to 7,675, and it was the most reliable feature on the chart. The monthly references reset for September and that shelf no longer exists. Support is now split into two separate levels instead of one.

The first is 7,665, which is 0.7 percent below Friday's close. It already broke once last week and got bought back, so treat it as contested rather than solid. The second is more interesting. The September monthly floor came in at 7,595, and the average price of the last fifty trading days sits at 7,592. Two unrelated measures landing three points apart is the strongest support reference on the board. Tuesday's low stopped 19 points above it without testing it.

Above the market, the ceiling for the week is 7,810 and the record high is 7,817. Those are seven points apart, so treat them as one zone about 1.2 percent up. Between here and there sits Thursday's high of 7,757, which is the first real test.

Now the number that has quietly become the most important on the chart. The line that would confirm the larger uptrend has broken moved up again, from 7,454 to 7,498. Three weeks ago it was 7,303. It has climbed 195 points in two weeks while the market fell less than half a percent. The distance has gone from 5.3 percent to 2.9 percent, and almost all of that closing came from the line rising to meet price rather than price falling to meet the line. That is the closest it has been all year.

There is one more feature worth knowing, and it is the cleanest thing on the chart. Thursday's rally left a gap between 7,671 and 7,707 that has never been traded back through. Friday's low stopped at 7,706, less than two points above the top of it. Untested gaps like that tend to act as either a launch pad or a trapdoor. Which one it turns out to be is the single most useful thing to watch on Tuesday's open.

Gold sits at 4,477 and the picture there got worse. It is now 46 points below its long term average price of 4,523, having been above it a week ago. Support is 4,412 and then 4,329, which is where the September low came in. It needs to clear 4,559 to say the correction is finished. The euro is at 1.1627 and pressing against its own long term average at 1.1633, with resistance at 1.1644 and then 1.1710. The dollar could not hold a gain on a jobs number that tripled expectations, and that tells you more than the number did.

The War Came Back, and It Is Now an Inflation Story

The chart was already set up for a downside test before any of this. Lower highs since August 13, a support shelf that just split apart, and a confirmation line climbing toward price. The war is the thing that would give the market permission to follow through, and it is escalating fast. Two oil tankers were hit on Monday night. Iran fired missiles and drones at Kuwait on Thursday. Over the weekend the United States disabled or destroyed three Iranian oil tankers after Iran launched ballistic missiles toward an American aircraft carrier. Shipping through the Strait of Hormuz has been largely blocked since late February.

Energy erased the previous week's decline and then some. Brent closed at 94.86 dollars, up 6.6 percent, and the US benchmark at 90.40, up 8.8 percent. The number that matters most is diesel, which hit an all time record of 5.82 dollars a gallon and is up 55 percent since the war began. National inventories are at their lowest level for late August since 1982. Almost every good in a store arrives on something that burns diesel, so that cost feeds into prices with a short lag. This is the same force pushing long term bond yields to a three year high, and it lands directly on Friday's report.

Friday, 8:30 in the Morning

The week is quiet until Thursday, when producer prices come out before the open. Then Friday September 11 at 8:30am brings the August Consumer Price Index, and it may be the most important economic release of the quarter. Inflation was running at 3.4 percent a year as of July, well above the 2 percent target.

Three things converge on it. First, the Fed governor whose comments drove Thursday's rally made his support for holding rates explicitly conditional on the inflation data over the next two weeks, and this is that data. Second, this is the first inflation report that will carry the energy shock. The last major reading covered July, before oil went above 90 dollars and before diesel hit a record, and energy prices actually fell in that report. August gets no such cushion. Third, it lands five days before the Federal Reserve decides, with the odds near a coin flip and nothing else on the calendar able to move them. A hot number likely locks in a rate increase. A cool number is the only thing that unlocks it.

Two Ways This Resolves

Scenario A, and the one the chart currently favors. Inflation runs hot, the rate increase becomes the base case, and the market fails at Thursday's high of 7,757. The first tell is a break of 7,706 and a close down through the 7,671 gap. That opens 7,665, then the 7,592 to 7,595 zone, and if that goes, 7,498 comes into range. It is worth remembering that the market has made a lower high three times running since August 13 and just made its first lower low. That pattern does not usually resolve upward.

Scenario B. Inflation cools, the governor gets his hold, and the untested gap at 7,671 to 7,707 does its job as support. Price reclaims 7,757 and runs at the 7,810 to 7,817 zone. Clearing that takes the record back and puts the whole negative case on ice for weeks. The honest counterweight to Scenario A is that this gap has never been tested, the weekly closes have risen two weeks in a row, and the entire decline from the August record covers only 2.6 percent. That is a coiled market, not a falling one.

The trigger for both is the same release. That is unusual and it is worth respecting. When one number decides the direction, the days before it are noise.

What to Do With This

Four things to hold in mind this week.

1. Nothing before Thursday means much. The calendar is empty and the market has already shown it will round trip 146 points and end where it started. Do not read direction into a quiet Tuesday.
2. Watch 7,706 and the gap beneath it at 7,671 to 7,707. It is untested and it is less than one percent away. How price behaves there is the earliest honest signal available.
3. 7,592 to 7,595 is the real floor now, not 7,665. Two separate measures land three points apart there. If the market is going to defend something, that is the zone worth defending.
4. 7,498 is the number that changes the story. It is 2.9 percent away and it has been rising faster than price has been falling. It will likely be closer again next week even if nothing happens.

One last thought on the setup. The market spent last week learning nothing and paying a 146 point range to learn it. The bond market, meanwhile, pushed long term yields to a three year high while rate expectations went nowhere, which means it is pricing an inflation risk that has not shown up in an official number yet. Friday is when it either shows up or it does not.