This bounce has been on weak footing and higher hourly wages are inflationary.
PRE-OPEN MARKET COMMENTS FRIDAY – As noted in my comments, I could not embrace this rally from a longer term swing perspective because of the price action. The breakouts did not have volume or follow through and that suggests that the moves were program driven. If Asset Managers felt that this was the last chance to buy at these levels they would have been aggressive and we would have seen both elements. This morning the 200-day MA will be breached. The uptrend line on a daily chart is at SPY $395 and the 100-day MA is at $391.70. Those are key levels to watch.
Yesterday I mentioned that the CPI spike on November 10th and the speech from Powell on Wednesday did not change the landscape. Both spikes were “one and done” and they had no follow through.
So let’s take one more look at both events. The CPI was slightly lighter than expected, but a decrease in the rate of inflation is a far cry from a decline in prices. This morning we learned that hourly wages increased .6% (.3% expected). That is the largest input cost for companies and it is inflationary. ECB Chairman (Legarde) feels that we have not seen the peak in inflation.
Powell said that the Fed is going to slow the pace of tightening. We already knew that. The market is pricing in 50 basis points in 10 days and 25 basis points in January and February. His speech did not provide any new information and the rally Wednesday was a giant short squeeze. We know that because there was no follow through yesterday and the volume dried up.
Seasonal strength, record levels of cash and corporate buy backs are keeping a bid to the market and they sparked a wimpy rally off of the low of the year. Slowing global economic growth, weak corporate guidance and an inverted yield curve are keeping buyers sidelined.
Swing traders should remain in cash. As you know from my comments, I did not trust this market bounce. We made a little money on the move, but we took gains when there was no follow through or volume. I don’t swing from the short side in November or December, but I sure as heck will day trade from the short side.
Day traders should watch for long red candles stacked consecutively in the first 30 minutes. That is a pattern you can short. Typically off of a relative high, bullish speculators will get flushed out and you will see that pattern. We are going to convincingly breach the 200-day MA. If we do not get this pattern, I would just wait for a bounce and focus on the short side. As the morning unfolds I will provide play-by-play commentary.
Oh goodie! We get to play today and we will have some volume and a breakdown to work with.
Support is at SPY $395 and resistance is at the 200-day MA.