CPI Release Tuesday
Here’s how the previous releases have looked.
PRE-OPEN MARKET COMMENTS MONDAY – The big news this week is the CPI. It has been a market mover in the past because it is fueling the Fed tightening cycle. I have included a chart of the CPI release dates below so that you can draw your own conclusions. I remain neutral to bullish long term.
What does that mean? I still feel there are plenty of dark clouds on the horizon. Some can produce nasty squalls, but nothing devastating. I do not believe we will see a market meltdown. I also do not believe we will see a runaway rally.
What makes me so confident in this thesis? The market has had the biggest round of news thrown at it in the last two weeks and it has not budged. When we have heavy volume we see two-side price action. Alternatively, we see heavy volume directional movement one day and then a pause and heavy volume directional movement the other way. Trust me, I just detailed the last trading month day-by-day in my article so I am intimate with the patterns.
On a longer term basis, I still like the market resiliency we’ve seen in the last few months. The Fed has been hiking rates at an unprecedented pace and inflation is still high. Earnings have underwhelmed and valuations remain stretched. Yet, the market bid has remained strong. Economic conditions remain stable and China is reopening. I am not a raging bull here. This is going to be a bottoming process. I do believe that we are going to avoid a full blown economic and market meltdown.
Swing traders are long SPY at $409. This is a longer term swing and we could take some heat on it over the next few days. I still feel this will be a good entry a few months from now. As far as selling bullish put spreads, let any dip run its course. A choppy grind down to the 200-day MA would indicate that buyers are still engaged and support at that level would set up and opportunity to sell spreads. I suggest keeping that mindset that any pullback is an opportunity, not a set back to the core SPY position. If those moving averages are tested quickly and they fail with ease, do not sell the spreads. This would be a sign of aggressive selling and we need to hold off. I don’t believe this will happen, but if it does, we will exit the SPY positions and wait for a better entry.
Day traders should prepare for a choppy session ahead of the CPI. We had a heavy volume drop Thursday and a pause Friday. The new “balloon” incidents have not sparked selling this morning (yet) and the market survived a potential bloodbath Friday. That will give buyers a little confidence. This leads me to believe that we are going to see a dull day. We might poke through the high from Friday, but that should be smacked down early. We will fall back inside of the range from Friday and a dull low volume “inside day” will unfold. Sorry for the news, but that is what I see happening today.
The CPI will produce a move tomorrow. I believe it will move contra to the “bets”. If there is short exposure, we will move higher. If there is long exposure we will move lower. I will do some option open interest analysis along with the /ES today. This is how the reaction has gone recently. Where ever the pain is, that is the reaction. In the end, the news runs its course and the market is back in wait and see mode. I believe that longer term, the market is getting numb to inflation.
Support is at $400 and $405. Resistance is at the high from Friday and $410.