The bulls are rejoicing about the lower inflation results.
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Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market.
Our View
The four main CPI measurements all missed economists’ expectations — in a good way.
In other words, inflation came in lower than expected. Coming into today, odds stood at around 50/50 that the Fed would raise by 75 basis points vs. 50 bps. in December. My gut now tells me that the odds will start to favor the 50 bps hike.
The higher jobless claims number helps too.
Our Lean — Danny’s Take
Coming into the report, I wanted to see how ES handled the 3850 area. Over this mark technically opens the door up to 3900 to 3920, which is where the ES stalled out last time.
To get there, the ES needs to get above and stay above 3867, which is this week’s high. That’s followed by 3880.
I can’t help but think that we’ve continued to see money flow in on the MIM near the close each day, as the big funds were loading up long. In the last 20 sessions, 17 have flashed MIM buys, with almost $16 billion on total purchases.
Technical Edge
- NYSE Breadth: 9% Upside Volume (!!)
- Advance/Decline: 19% Advance
- VIX: ~$26.00
The lower-than-expected CPI results are going to have a bullish reaction in the S&P. The question, so to how big of an extent?
Yields are falling (bullish), the dollar is falling (bullish) and my guess is that investors will speculate on a less-hawkish tone from the Fed (bullish, if true).
I wonder if we can get a 90/90 day on breadth & advancers, signaling a big return of demand. Let’s try to do some charting.
S&P 500 — ES
Above is the ES and a 1-hour chart. You can see how it’s powering through this week’s high of 3867.
The 78.6% retrace is at 3880. Above that and we could see 3900, then 3920-25.
ES Daily
On the “bigger picture” it’s clear to see how 3880+ gets us to 3925.
3928 is the 2x weekly-up level. If we see that today or tomorrow, we could be looking at a move to 4000, then to 4050-60 and the 200-day.
SPY
Already up about 3.2% in the pre-market, it will be interesting to see how the SPY digests today’s news.
I want to see it hold above the $385 to $386 area. That’s teh 78.6% retrace and this week’s high. If it can do that, $390 is in play.
If breadth is running high — like 90%+ — consider buying the dips to the 10-ema on the shorter timeframes (like the 5-min or 10-min).
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the trades that are open. g
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Open Positions
- GIS — Down to ⅓ to ½ after $82 trim. Next trim is $85 to $86, but seems less likely given the climate. Stop at $78 if you’re still in.
- Can consider a trim at $81 to $82 if you’d like to reduce to just runners from here.
Relative strength leaders →
Top Picks (these have been Robust lately):
- LNG
- MCK — great reset at 10-ema
- CAH — monster move.
- CI
- CCRN
- GIS
- LPLA
- REGN
- ENPH, FSLR — solar has strength
- VRTX
- UNH
- MRK, AMGN
- XLE — XOM, CVX, COP, BP, EOG, PXD
- TJX
- NOC
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