S&P 500 (SPX) waits for CPI before breaking out

view original post
  • Equities lose ground on Wednesday as positions square up.
  • Crypto meltdown hurts high-risk assets as Nasdaq suffers.
  • Thursday’s CPI is expected to show slowing inflation.

Equity markets are waiting cautiously for a dovish CPI. Positioning and sentiment feel to this author to be overly optimistic. Ahead of the key data, we have had a strong equity rally that finally stalled on Wednesday. No surprise as investors took chips off the table before the data.

S&P 500 (SPX) news

Overnight equity markets ignored a fairly poor US 10-year treasury auction. Yields were unexpectedly higher, and demand for the debt weakened. That would usually signal higher yields are needed to attract investors into the space. Also the imminent CPI will have curtailed some appetites. Tesla (TSLA) continues to suffer as Wedbush analyst Dan Ives cuts his price target, and we still worry over China and the effect on Apple (AAPL). The US elections look like a win for the Democrats but not any great for risk markets. The Fed can now move on worry free and raise rates as it sees fit to curb inflation. 

S&P 500 (SPX) forecast

3,806 remains my key pivot. Today’s CPI will move us away from this, which should then add in CTA and trend-following systems to extend the move. It appears the market is set up wanting to rally. This puts the risk-reward biased lower in my opinion. We have been looking for inflation to slow down now for some time, and so far that has not happened. Adding rising oil prices and mortgage payments, I am not so sure we get a lower print. A spike to 3,806 is likely to see a quick break to 3,892. Failure and we head straight for 3,646. 

SPX daily chart