The S&P 500 initially tried to recover on Tuesday, but as you can see we have given back all of the gains to show signs of extreme weakness. Ultimately, this is a market that looks as if it is scared to death of the CPI numbers coming out during the Wednesday session, which will give us an idea as to how bad inflation truly is. Because of this, I think the market will more than likely continue to see a lot of volatility, but it certainly looks as if we are “leaning” to the downside.
The S&P 500 continues to worry about the inflationary headwinds, and perhaps more importantly at this point in time, the Federal Reserve. The Federal Reserve continues to look as if they are going to be very tight going forward, and aggressive when it comes to monetary policy. If the CPI print comes out stronger than anticipated, that could be a very negative turn of events for this market. If we break down below the bottom of the candlestick, it is likely that we will continue to see some follow-through, perhaps opening up the possibility of a move down to the 3900 level.
On the other hand, if we get a reading that is lower than anticipated in the CPI figure, we may make a serious attempt to get to the 4100 level. There is a barrier between 4140 and 4150 that I think is going to be difficult to overcome, so keep that in the back of your mind. Market participants will continue to see this as a “sell the rallies” type of situation, as the market has far too much to concern itself with right now to suddenly get wildly bullish. It is worth noting that every rally has been sold into as of late, and it looks as if the negativity is going to continue to be a major factor in this market.
If we were to turn around and break above the 41 to 50 level, that would be an extraordinarily bullish move, but right now I just do not see the momentum of the market swinging that rapidly. It would take something rather remarkable coming out of the CPI to make that happen, something that I do not think we will get.
