Post September 13th CPI market outlook
Let’s start off with a light note, before CPI release, the Bull and bear were waiting eagerly.
After CPI release, the bull was yanked away violently and bear was ready for the feast.
Market was brutally surprised by the upturn in Core CPI, the plunge of 4.3% in S&P 500 shows market was wrongfooted as it had been slowly pricing in a lower CPI number Pre CPI data release ( help by the soften commodity and USD recent weakness ). Day like this reminds you the importance of risk and trade management, I was very lucky to be stop out at breakeven level ( I was almost tempted to not move my stoploss to breakeven, but I did anyway out of habit ). The annihilation happen so quickly in nanosecond that I didn’t even have time to react.
<SPX, NYSE downvol/upvol ratio , NYSE trins>
Selling persisted all day, and market got so depressed that every stock in Nasdaq 100 fall ( 100 /102 decline, 0 advancing ) on September 13th market close. NYSE recorded downvolume/upvolume ratio in excess 11, or 90% downside volume day, NYSE Arms trins are above 2.40 after market close. All in all, a very bearish reading.
No matter how you slice it, it’s one freaking ugly picture, and best to stand in the sideline for the next 2-4 weeks, to see how the market digest the next few days. Considering the next few huge, earth-shattering event and ugly period period,
1) Option expiry date ( 16th Sep) - potentially ugly
2) Fed meeting ( higher rate projection ) – even uglier
3) Market seasonal weakness in 2nd half of September – very ugly period
4) 13th Oct CPI release – anyone’s guess ( but if bull needs to come back to life, CPI needs to moderate at the very least )
<SPX symmetrical triangle inverse H&S not yet broken but likely broken soon>
in terms of current technical picture, bear has all the advantage now, and we are waiting for bear to follow through and unleash hell in next few days/weeks. Interestingly the S&P is still within the symmetrical triangle while we await the bearish follow through to breakout of the triangle in the coming session.
Also we are waiting for bear to invalidate the inverse head and shoulders pattern, Whether it break out or doesn’t breakout, we will learn something either way in the coming days.
After the ( expected ) bearish follow to the downside, I will be looking at the how the expansion of New high – new low, new 52 week low evolve , as well as % of stock above 50 days MA, 200 days MA, to look at how market breadth deteriorates as market fall further.
<SPX New high, new low>
<SPX % of stock above 50, 200 MA>
If the new low indicator does not go lower than June 16th SPX 3636 level New low indicator, as market goes down ( especially if SPX breaks 3636 ) then the divergence could be an excellent entry point. But it’s still too early to tell, we will see how it evolve in the coming sessions.
Just to share a confusing observation, Consumer discretionary is not doing too bad in and even better than consumer staples, considering the recent pandemonium.
<sector RRG>
Consumer discretionary is surprisingly inside Leading quadrant in the Sector Relative rotation graph (sector RRG), it’s supposed to be in weakening and lagging quandrant given the high CPI, isn’t it ? confused, surprised ? We will see how it evolve in the next few weeks.
Stay tune for further update.
Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/