As suspected, this has been a choppy, directionless week of trading. There haven’t been many economic releases worth mention and retail stocks have provided a mixed bag of results.
This morning, the CPI rose by .8% and the core rose by .3%. The market had an initial negative reaction and that move reversed just as I said it would. Energy prices have fallen sharply, grain prices are down after last week’s robust agricultural report and basic metals are trading lower on concerns that global expansion is slowing down. Inflation is not a major concern at this juncture and next week’s PPI number will be a nonevent as well.
Tomorrow, we will get the New York Empire index, capacity utilization and industrial production. Those numbers have been weak, but not dire. Next week we will get the LEI and the Philly Fed in addition to the PPI. All told, next we are setting up for a real yawner. The net change for the last four trading days is zero.
On the earnings front, we will get another round of retail results and we can expect another mixed bag. We are at the tail end of the earrings quarter and the releases don’t pack much punch at this stage.
Earnings and interest rates drive the market and we have a stalemate. Earnings were down 20% from last year, but lower input prices will revive margins. The comparatives will also start getting easier since earnings faltered a year ago. Interest rates will maintain their current level as global economic activity wanes. Inflationary pressures will subside due to the recent fall in commodity prices. The market lacks a catalyst and quiet trading could set in as traders take time off. This is also reflected in the declining VIX.
The market has been resilient and it is trying to claw its way above SPY 130. A nice uptrend has formed from the low in July and a breakout could spark short covering. Remember to keep your bullish trades small since we are “going against the grain”. The intermediate term trend is down and more weakness lies ahead.