- The S&P 500 gapped higher to kick off the session on Tuesday, as the CPI figures before the session opened came in at 7.1% year-over-year.
- It was anticipated to be 7.3%, so of course, Wall Street celebrated the idea that inflation was dropping.
- At this point, a lot of traders are insisting that perhaps the Federal Reserve is going to have to slow down its monetary policy program, but quite frankly I don’t see that being likely.
The main reason is that the 7.1% inflation reading is still astronomically high and is certainly something that the Federal Reserve would be keen to fight. Keep in mind that the Federal Reserve has a meeting on Wednesday, that will most certainly have a major influence on where we go next. The idea of a rate hike probably isn’t much of a surprise to anybody out there, and it’s more likely than not priced into the market.
Things are Getting Difficult
This is where things get difficult because it is more likely than not going to be a situation where people are trying to trade based upon either the statement or the press conference. In other words, it’s going to come down to the perception of what Jerome Powell has to say, which of course has a reputation of bumbling press conferences every chance he gets.
The 200-Day EMA sits just below, so it could offer a little bit of support, and of course, we also have the 50-Day EMA. It’s almost as if Wall Street’s trying anything it can to push the market higher, but at the end of the day we will be running out of liquidity later this week, so it’s possible that we could see erratic moves. Ultimately, not quite ready to start selling, but I also would necessarily think this is an opportunity where we could start to see the tide turned. Clearly, by the end of the week, we should have a bit of a heads-up, but then the lack of liquidity will either make the markets completely die off, or it will allow for outsized moves. You don’t really know until you get there, so position sizing is crucial this time of year, and this year of the course will be no different than any other one from that standpoint. Ultimately, this is a situation where caution is necessary, but if we do break above the highest of the day on Tuesday, then I suspect 4200 will be targeted.
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