...the crack in the rally finally came as US Services and...

...the crack in the rally finally came as US Services and Non-Manufacturing PMI as well as ISM Business Activity all came in stronger than expected suggesting that 'good news is bad news' providing just the right ammo for the Fed to be emboldened with continued higher for longer rate hikes ahead. This adds fuel to possibility that the Fed could contemplate a higher terminal rate ahead in next week's FOMC. As I did caution, when the fall comes, it comes swiftly and sharply and it did, and that nothing would be spared. Mike Wilson seems to have a strong following in Wall St, and perhaps market participants followed when he said the rally was over and now heading lower.
Overnight, Dow fell -482pts to 33,947 , the S&P500 broke down 4k down -1.79% to 3998 while Nasdaq lost -1.93% to 11,239.

It was a night Tesla plunged -6.37% and Salesforce -7.4% while Commodities were heavily battered as DXY edged higher +0.78% to 105.36 closing in on the 105.5 resistance. Gold lost almost $30 to $1768 down -1.63% from an intraday high of $1810, WTI crude fell sharply by -3.64% to $77 on concerns over the oil price cap on Russia that is to be enforced, Natural gas plunged -10.5%, Silver cratered -3.87% to $22 , Copper -1.71% to $3.78.

Financials were notably weak , the XLF suffered -2.53% loss but bigger downdrafts were seen across major banks, notably Wells Fargo -4.92%, Bank of America (BAC) -4.52%, Citigroup -3.43%, JPMorgan -2.76%.

Gold/gold equities did not pass the test I indicated - which is to rise when equities slumped. It did what I said it would do every single time equities puked which is falling in tandem and harder and until that changed, they were going down with equities. Gold equities suffered 2x the loss suffered by the S&P500 and it only did well during the equities bear market rally. GDX and GDXJ both tumbled -3.54% and -4.84% respectively.

Energy stocks were big losers on the day.
Oil stocks cratered, XLE -3%, Exxon -2.79%, Chevron -2.44%, Occidental -2.71%, Marathon Oil -4.07%, Halliburton -5.25%.
Lithium stocks were also hammered, LIT fell -4.68% and heavy losses seen across the majors, ALB -6.68%, SQM -4.73%, LAC -5.59%, PLL -6.51%.

As Bloomberg adds, money managers have trimmed positioning in Nymex crude for three weeks in a row. A breakdown of the data show the drop in positions is mostly from money managers cutting long exposure, rather than an abrupt short-covering.

Stocks, Bonds, Bullion, & Black Gold Battered As 'Soft Landing' Hopes Fade

BY Zero Hedge
TUESDAY, DEC 06, 2022 - 08:00 AM
Futures drifted gently lower overnight despite Chinese stocks rising on COVID-restriction-lifting rumors but then got bitch-slapped down by Fed whisperer Nick Timiraos pushing the 'higher rates for longer' narrative to walk back some of the market's post-Powell exuberance. That sent bonds and stocks lower and terminal Fed rate expectations higher.
A mixed bag in the Services surveys (PMI down hard but ISM higher somehow) and Factory Orders rose more than expected, prompted another leg down in stocks and higher in terminal Fed rate expectations (back above 5.00%)...


So The Fed will hold rates 'higher for longer' as 'good' economic news remains too strong... not a good sign for the 'soft landing' narrative.
All of which prompted an ugly session in stocks with the S&P and Nasdaq down 2% (Small Caps worst of the majors on the day, down 3%)...

"Most Shorted" stocks tanked today with no squeeze attempt at all...

Source: Bloomberg
Bear in mind that the S&P is down for 6 of the last 7 days (the only winning day was after Powell spoke last week). The Dow and Small Caps are now only up 0.5% from before Powell's address...

The S&P broke down below its 200DMA...

VIX traded back above 20 today but remains dramatically low relative to realized vol...

Source: Bloomberg
Bonds were also dumped today with the belly of the curve dramatically underperforming (5Y +15bps, 30Y +6bps)...

Source: Bloomberg
The 2Y Yield pushed back up to Friday's post-payrolls spike highs (still well down from pre-Powell)...

Source: Bloomberg
The dollar surged back above Friday's spike highs...

Source: Bloomberg
Bitcoin rallied up to $17500 overnight, only to give it all back, trading back below $17k...

Source: Bloomberg
The dollar strength (and hawkish sentiment) hit Gold, which tumbled back below $1800...

A massive roller-coaster of a day for crude prices as China COVID easing, OPEC headlines, and Russia price caps all combined with a string dollar and hawkish sentiment to pump and dump WTI to $83 and back down to $76 handle...

Finally, are we heading back down?

Source: Bloomberg
No way, right?