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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
We want to keep this short and simple and we want to have the Print in your hands well before the CPI reading at 8:30 a.m.
The CPI report is going to be the market driver today. The PPI (released yesterday) has two readings: PPI and Core PPI. Core came in in-line (at 0.3% vs. 0.3% exp.) while PPI came in hotter (at 0.4% vs. 0.2% exp.)
I don’t know if that kills the likelihood of a cooler-than-expected CPI print, but it doesn’t seem to bode well.
Yesterday the VIX traded up to $34.53…the question is what is it signaling? I know people think I am Dr. Doom — I’m really not! — but of all the years of following the S&P, I am more concerned about the index than I’ve ever been. I just don’t think people fully grasp the severity of what’s going on and what is coming down the pipe.
Our Lean — Danny’s Take
It was chop suey yesterday, but that’s going to change today. There are two major lines of stop-losses.
On the upside, the buy stops start above yesterday’s high around 3620 to 3330. On the downside, stops start under 3573. The major levels are below.
Everyone is talking about the CPI report, as expected. But they are talking about it because if there’s any hope that the Fed will pivot, it will be on a lower-than-expected inflation print. I just don’t know if that’s happening though, and if it does, I don’t think it will be significantly cooler. The PPI just showed that there wasn’t a drastic dip in inflation.
I don’t think the Fed will pivot, either. At least not based on this CPI print. And if the print is hot, then you know what? The Fed definitely isn’t slowing down on the rate hikes.
That said, it’s going to be an algo run regardless. Hot numbers and they’ll tank it. Cool numbers and they’ll likely rip it.
Daily Recap
If you want to know what chop looks like, just look at the chart above. The ES opened at 3604 after fading from its Globex highs due to the PPI report. Shares traded down to 3585.50 in the opening few minutes, making its low for the day.
It promptly popped 35 handles to the upside, then entered a series of 28-point dips and rips until 2:00. From there, the ES rallied 23.5 points after the release of the Fed minutes — a lower high — then pulled back 29 points into the 3:50 MIM reading.
With the MIM showing more than $1.2B for sale, the ES fell 10 points in 10 minutes, closing at 3587.50 at 4:00 before bouncing into 5:00 and settling at 3593.25.
In the end, it was a no-day full of chop, although there were some nice swings. In terms of the ES’s overall tone, it was messy. In terms of the ES’s overall trade, volume was on the lighter side at 1.90 million.
Technical Edge
- NYSE Breadth: 46% Upside Volume
- Advance/Decline: 38% Advance
- VIX: ~$33.50
Game Plan: S&P, Nasdaq, Bonds
This market seems tired of going down but just doesn’t have the buying power to give us more than just a few dead-cat bouncing of varying strength.
I know the CPI report is important, but it seems like the Fed is going to do what it’s going to do regardless of tomorrow’s print.
S&P 500 — ES
The move to the downside has certainly decelerated over the last few sessions. The problem? Bulls just can’t seem to gain any momentum to the upside, while it keeps “deliberately” closing below the June low.
From here, the 3570 to 3580 level remains key. The morning dip to this level held firm and bounced hard. That was the only good trade of the day.
Tomorrow, this level is either going to break on a bearish reaction to the CPI print or we’re going to rally.
If the ES breaks 3570 to 3580, there are two paths to watch: Does this zone become resistance or is it reclaimed? If it’s resistance, 3520 to 3500 (or lower) is in play.
On the upside, 3640 is the first level to watch, along with the declining 10-day ema. Above that and the 3700 to 3725 area is in play, along with the 21-day.
SPY
SPY tipped lower late in the day Wednesday and is now down six days in a row. It’s hard to be super bearish after that many down days, but we’ll see what Thursday brings us.
At this point, it wouldn’t take much to get us a much-needed test of the $350-ish area, which is now less than 2% below current levels. On a bearish open/reaction, I want to see how this area holds.
On the upside, I’m watching $362 to $364, which is the June low and recent resistance, along with the declining 10-day.
Above that and $370 to $372 is in play, along with the 21-day.
Nasdaq — NQ
We have an inside day on the NQ. Notice the way it continues to build below not only the June low but now the September low as well. It closed below the latter on Tuesday, then tried to bounce today and closed back below it.
From here, let’s watch for a range break — either an inside-day-and-up rotation over 10,976 or an inside-day-and-down rotation below 10,800.
If the former, 11,070 to 11,130 is in play.
If the latter, 10,750, then possibly 10,500 is on tap.
QQQ
A whole lot of supply is building in that $267 to $269 zone. Be leery of a gap-up into this zone on a so-so report, as it could be a key fade candidate on the day.
On the downside, keep an eye on the $258-ish area, which is the 61.8% retracement from the ATH down to the Covid low.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the ones I’m watching most closely.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Notes:
- FSLR — those who didn’t get a chance on Monday got their chance to get long yesterday and we got the $132 to $133 trim zone. Can go with a B/E stop loss here.
- Conservative traders can look for $135.50 to $138 as the next trim. More aggressive traders can fish for $140.
- XLE — Nearly hit our first target today, (sorry I didn’t flag that on Tuesday, I didn’t think we’d get such a spunky reaction). Traders could have trimmed near the two-day high and can do so today. Additionally, inside-and-up day is possible.
- use a stop-loss near $76 for a tight trade.
Relative strength leaders →
Top:
- LNG — nearing the breakout near $150
- MCK — Stopped earlier but still holding the breakout near $340
- CAH — Just Robust
- LPLA
- CCRN
- FLSR
- ALB
- VRTX
- CYTK
Economic Calendar
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