The market has a key area of support to hold after the inflation report. If it fails, down we go. If it holds, the bulls might have something.
The monthly CPI report has become more closely watched than the monthly jobs report.
While that won’t always be the case, inflation is rippling across the market. It’s being felt domestically and abroad, as well as in equities, bonds, interest rates and the housing market.
On Thursday afternoon, the stock market tipped lower, breaking below last week’s low and moving to the downside in anticipation of a poor inflation report Friday morning.
On June 10, that’s what we got as gas prices helped drive up inflation. The CPI reading came in ahead of expectations, sending stocks tumbling lower.
The fear is that inflation isn’t going anywhere.
Combating inflation has become the Federal Reserve’s top objective, regardless of what its actions do to the S&P 500 or economy.
The Fed was too slow to react to inflation, failing to raise rates until March. Even then, it was an increase of just 0.25 percentage point. Now the Fed is on a rate-hike spree and beginning to unwind its massive balance sheet.
In combination with today’s inflation report, it’s got investors all asking the same question: Have we seen the low or are more losses to come?
Trading the S&P 500
Daily chart of the S&P 500.
Chart courtesy of TrendSpider.com
Following an impressive upside thrust that could have marked the low, the market has made a decisive break lower from its consolidation phase.
Through June 8 the SPDR S&P 500 ETF (SPY) – Get SPDR S&P 500 ETF Trust Report was doing a great job holding the prior week’s low near $407 and the 10-day moving average. With Thursday’s action, though, both levels failed as the S&P 500 rotated lower.
Today’s gap down thrust the 61.8% and 78.6% retracements into play. Further, the $387 to $390 area was prior support last month.
The situation doesn’t look great as the market still has multiple headwinds trying to push it lower and the action in stocks and bonds is not encouraging.
That said, if the 78.6% retracement and $387 to $390 area can hold, we could see one heck of a rebound.
A break of $387 and failure to bounce almost surely puts the 2022 low in play near $380.50. Below that and, who knows, perhaps a move all the way down to $350 could be in the cards.
On the upside, a rally to the 10-day and 21-day moving averages is suspect, while $407 may very well be resistance.
Trading the Nasdaq
Daily chart of QQQ stock.
Chart courtesy of TrendSpider.com
In the Invesco QQQ ETF (QQQ) – Get Invesco QQQ Trust Report we have similar action. After a nice move to the upside, the Nasdaq consolidated above $303 and the 10-day moving average.
On Thursday, it broke below all these levels, as well as the 21-day moving average. But today’s gap-down to the 61.8% and 78.6% retracements is holding … for now.
That’s likely as a portion of today’s risk was reduced with yesterday’s decline. Now Friday’s action is key.
If the QQQ can hold up in this area, that would bode quite well for the bulls. If it can’t, then we may see another dip back to the lows near $280. A break of $280 and failure to bounce could usher in a test of the low- to mid-$260s.
On the upside, keep a close eye on the $300 to $303 area. For now, that’s expected to be resistance.
