Weekly Wisdom: Cool PPI Pushes Markets Higher

Greetings fellow traders and welcome to your August 15th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, August 12 – August 16:

• Markets have bounced back with authority this week after last week’s violent washout lower, mostly taking place last Monday morning before the market even opened.  
• In just two weeks, markets have gone from being extended to the downside to extended on the upside – very impressive!  
• Data for the week began on Monday morning with the Cleveland Fed inflation expectations coming in at 3.4% vs 3.8% previously. We then saw a miss on the Federal budget balance at -243.7 billion vs -238.1 billion expected.  
• Tuesday brought an impressive rally to markets on the back of cooler than expected PPI data across the board. PPI y/y came in at 2.2% vs 2.3% expected. PPI m/m was 0.1% vs 0.2% expected. Core PPI y/y was 2.4% vs 2.6% expected, with core PPI m/m coming in at 0.0% vs 0.2% expected. The weak data added further certainty to Fed rate cuts coming later on this year. We also saw a beat for the NFIB Small Business Index at 93.7 vs 91.5 expected.  
• Wednesday brought further inflation data with the latest CPI update, which was an overall more inline report. CPI y/y came in at 2.9% vs 3.0% expected. CPI m/m was 0.2% vs 0.2% expected. Core CPI y/y was 3.2% vs 3.2% expected, while core CPI m/m was 0.2% vs 0.2% expected.  
• Thursday brought further supportive data to markets, beginning with weekly unemployment claims coming in at 227,000 vs 236,000 expected. Retail sales m/m was a beat at 1.0% vs 0.4% expected, with core retail sales also beating at 0.4% vs 0.1% expected. The Empire State Manufacturing Index was a beat at -4.7 vs -5.9 expected, while the Philly Fed Manufacturing Index was a miss at -7.0 vs 5.4 expected. Import prices were also a beat at 0.1% vs -0.1% expected. Next, capacity utilization rate missed at 77.8% vs 78.5% expected, with industrial production m/m also missing at -0.6% vs -0.3% expected. Later in the morning, business inventories m/m came inline at 0.3%. The NAHB Housing Market Index was a miss at 39 vs 43 expected.  
• Overall, data for the week showed that inflation is coming down, but consumers are still spending and the economy is holding in well for now.
• Friday, August 16 ends the week with data for building permits and housing starts at 8:30 a.m. ET. We’ll also see prelim University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET

Here’s what we are eyeing next week, August 19 – August 23:

Level Highlights:

• $SPX futures have had a violent bounce back higher this week, continuing on from last week’s rally that followed the Monday morning low.  
• $SPX futures, in just two weeks, have bounced from a low last Monday of 5120 to a current high of 5560 – a 400+ handle rally, very impressive! 
• Markets have moved up so fast and far this week that we are now actually extended to the upside on a daily chart level, and bulls should begin to utilize some patience here before looking for another leg higher.
• Resistance on the upside for $SPX futures can be found at 5575, 5600, and 5650.
• It is unlikely we see higher than 5650 next week without some type of small correction, either through some backing and filling in price, or sideways daily chop for a few sessions.
• The $VIX has collapsed lower along with the market’s sharp bounce, trading down to 14.77 off the high of just over 21 on Monday – the 15-14 zone is a potential area of support that the $VIX may have trouble sinking through without a bounce or at least pause in the down move.

Upcoming News:

• Monday, August 19 does not deliver any new meaningful data for the start of the week.
• Tuesday, August 20 Canada reports their latest CPI update at 8:30 a.m. ET. We’ll also see some Fed speak in the afternoon around 1:30 p.m. ET.
• Wednesday, August 21 brings the FOMC meeting minutes update at 2:00 p.m. ET – however there is no rate decision or press conference with this meeting update.
• Thursday, August 22 starts off with weekly unemployment claims at 8:30 a.m. ET. This is followed by flash manufacturing PMI and flash services PMI at 9:45 a.m. ET. We’ll then see the update for existing home sales at 10:00 a.m. ET. Thursday is also Day 1 for the Jackson Hole Symposium.
• Friday, August 23 ends the week with new home sales at 10:00 a.m. ET. Friday is a big Day 2 for the Jackson Hole Symposium.

Here’s Your Chart of the Week:

Via Bloomberg:  For the first time in over a year, Bonds are negatively correlated with Stocks again.

Source

SPY Daily Update:

$SPY daily chart has had a fierce bounce back higher following last week’s major washout, with $SPY bouncing over 40 points higher from last Monday’s low. $SPY is now extended to the upside on the daily chart, with 554 and 557 showing some resistance if we see higher prices this week.

SPY Weekly Update:

$SPY weekly chart with two huge green weeks after a far deeper pull in than most traders expected following the Japan drama. A close over 555 on the weekly chart officially puts the bulls back in full control – but it will be hard to see a third big green week next week, so bulls may want to utilize some patience into the second half of the month.

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:33pm ET August 15, 2024

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