Weekly Wisdom: CPI As Expected, Earnings Season Begins

Greetings fellow traders and welcome to your January 13th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

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

Taking a look back on this week, January 9 – 13:

• CPI data was released Thursday morning with overall results coming in line; CPI Y/Y came in at 6.5% vs 6.5% expected, Core CPI came in at 5.7% vs 5.7% expected.
• Charles Schwab chief investment strategist Liz Ann Sonders noted core goods CPI is “seeing rapid disinflation, while core services is taking longer to roll over (actually moved higher Y/Y in December).”
• Costs for shelter, motor vehicle insurance, and apparel increased while prices for gasoline, airfare, and used vehicles decreased. 
• Market participants seemed to scratch their heads and trip over themselves a bit Thursday morning following the report, as many were hoping for more of a solid miss on the light side. Due to these anticipations, $SPX was actually slightly overbought going into the CPI report. $SPX futures had a fast initial move down from 4012 highs to a low of 3954. 
• However, $VIX then had a sharp down move, breaking down the symmetrical triangle / 21 level we pointed out last week, sinking the majority of the trading day to a low of 19.
• Bulls were able to recover fast and hard with the $VIX meltdown, bouncing $SPX futures hard and fast to a high of 4021 a mere 25 minutes later.
• The trading day ensued with a choppy yet bullish tone as the $VIX spent the majority of the day bleeding lower. Despite the day’s volatility, $SPX stayed inside the 8:30-9:00am range throughout the session.
• $SPX closed the day on the side of the bulls off lows at 3983. $VIX closed 18.89, down 10.5% on the day and at the lowest level since early April 2022.
• Earnings season kicked off this morning with $JPM, $BAC, $BLK, $C, $WFC, $BK, $DAL, $FRC, $UNH reporting before the open.

And here’s what we are eyeing next week, January 17 – 20:

• As mentioned above, banks kicked off earnings season this week, then $NFLX reports Thursday, January 19 after the close. More key names follow the next week, including $MSFT and $TSLA.
• Bulls remain in control with $SPX above 3950, the reaction low for Thursday’s volatile price action. However, we are slightly overbought still with the $VIX at the lowest levels since April as we approach the major resistance trend line which is now just above the 4000 resistance level. Some more time may be needed before another real leg higher to 4100, but as long as we remain above 3950 bulls do have momentum in their favor. That would be a good stop point for longs taken through the 3920 level highlighted last week here.
• Markets are closed on Monday, January 16 in observance of Martin Luther King Jr. Day.
• Canada will release their CPI report at 8:30 a.m. EST on Tuesday, January 17.
• Wednesday, January 18 we’ll get the December PPI, core PPI, retail and core retail Sales at 8:30 a.m. EST. The Fed also releases its Beige Book at 2:00 p.m. EST.
• Thursday, January 19 will bring us the weekly unemployment claims report as well as December housing starts and building permits at 8:30 a.m. EST.
• Friday, January 20 the National Association of Realtors releases December existing home sales data at 10:00 a.m. EST.

Here’s Your Chart of the Week:

Taking a look over the pond here as many think the recession situation in Europe could be worse than the U.S. We have been sharing charts here of the rapid deceleration in M1 money growth and personal savings. Simply going off this chart, Eurozone PMI has downside catch up vs M1 growth, unless that M1 growth is about to reverse higher soon.

Source: https://twitter.com/WallStJesus/status/1612688717172416514/photo/1

SPY Daily / Weekly Update:

The “brewing storm” resolved to the upside with SPY giving a nice move into the CPI report on the break higher of 386 to a high of 398.49 Thursday. Bulls remain in control with SPY over 390, but this was a big move into the event and some more time is mostly likely needed before another move higher past 400 to 410.

Similar to the daily caption above but just a bigger picture look. $SPY has given a nice 2 week move on the break of the multi week consolidation. Bulls are in control for now, but we are approaching resistance at 400.

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 9:33am ET January 13, 2023

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