Everything hinges on next weeks CPI no.

Hello all,

After a couple of volatile sessions the market has more or less maintained it’s bullish direction. Yesterday the sellers came in in size at SPX 4162, exactly at the top daily Bollinger band level posted here the other day, however the buyers came in strongly at 4090 and reversed all the selling and got it all the way back to 4180 followed by a very late sell off (100m shares) back down to 4155. SPX closed at 4120 on Wednesday. The Nasdaq had a 49% downside day on Tuesday despite closing up nearly 2%. It’s mostly large cap tech stocks driving the rally in tech. The Dow Jones has gone nowhere in months notably. On the plus side we have had a breakout (below) followed by a successful back test on the S&P which is technically bullish. Still too many question marks here for me though.

Chart courtesy of @braczyy

Personally I am sitting on my hands and not buying equities here (apart from the energy sector), if the rally continues (see charts below) then so be it, I don’t mind waiting. Chasing this rally for what is potentially limited upside does not interest me. The market will always give you more chances, valuations are still too high for me given the macro outlook. Goldman Sachs has said to expect ‘zero upside for equities through the end of the year’.

If we are to see a reversal lower watch the defensive sectors (Healthcare XLV, Utilities XLU, Consumer staples XLP), if they get bought while the market continues to rally then a trap is being set. I am still waiting for the pennant on the S&P to complete time wise. Not by coincidence it completes next week at the same time the CPI number is released.

Below is some chart analysis, the inflation trajectory, levels to watch, Nasdaq, Dow Jones, XOP, the bond markets, central banks and more.