On the downside, if we were to break down below the 50-Day EMA, and then of course the 3900 level, then I think the market falls apart.
- The S&P 500 rallied a bit during the trading session on Thursday but seems to be struggling to hang onto the gains.
- The market has a lot of noise just above, as we are forming a larger “broadening wedge.”
- The 200-Day EMA sits above the 4000 level as well, so I do think that it is probably only a matter of time before we see signs of exhaustion on an even bigger move that we can start shorting.
On the downside, if we were to break down below the 50-Day EMA, and then of course the 3900 level, then I think the market falls apart. We have been grinding higher for a while, but it’s also worth noting that we have seen rallies like this in the past through the context of “The Fed is going to come to save everyone.” That obviously is not the case, so it’ll be interesting to see how this plays out.
Waiting for the CPI Numbers
Keep in mind that the Friday session features the CPI numbers, and that’s going to have a lot to do with what people perceive the Fed doing in the near term. If those inflationary numbers are hotter than anticipated, it would be a very ugly turn of events for the stock market. If it is hotter than anticipated, that could suggest that the stock market needs to reprice itself to the downside. On the other hand, if the CPI numbers are lower than anticipated, I would anticipate that Wall Street will celebrate because in the short term it would make the idea of inflation a nonstarter.
The consensus almost eerie now is that inflation has peaked, and that may very well be the case. However, the Federal Reserve is going to stay tight much longer than most of these people think, and therefore it’s probably only a matter of time before I must start pricing in a real recession. It’ll be interesting to see how this plays out, but I think in the short term we probably continue in the overall range that we have been in over the last couple of weeks. Longer term, I think that we have an interesting story to pay attention to in January, once traders get back from holiday and liquidity picks back up to the normal pace.
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