Weekly Wisdom: CPI Comes In Light

Greetings fellow traders and welcome to your November 16th 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.

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Taking a look back on this week, November 13 - 17:

• Markets ignited higher on Tuesday as the October CPI data came in lighter-than-expected across the board, giving the Fed more breathing room and helping interest rates ease up as traders are betting the bond market has done the rest of the Fed’s work for them.??
• Data for the week kicked off on Monday afternoon with the federal budget balance coming in at -$66.6 billion vs -$70.5 billion expected.??
• Tuesday was the big day for markets this week with all CPI components missing by 0.1% across the board on the lighter side, giving the Fed some hope that their fight against inflation is going well. CPI y/y came in at 3.2% vs 3.3% expected, CPI m/m came in at 0.0 vs 0.1% expected, and core CPI m/m was 0.2% vs 0.3% expected. $SPX futures soared higher and interest rates plunged lower on the lighter than expected inflation data.??
• Wednesday brought us further data with updates for both PPI and retail sales. PPI y/y came in at 1.3% vs 1.9% expected which was a decent miss, PPI m/m was also a miss at -0.5% vs 0.1% expected, core PPI y/y was a miss at 2.4% vs 2.7% expected, and core PPI m/m was also light at 0.0% vs 0.3% expected. Retail sales came in slightly better than estimates with headline retail sales m/m coming in at -0.1% vs -0.3% expected and core retail sales m/m at 0.1% vs 0.0% expected.??
• Thursday’s weekly unemployment claims was a miss at 231,000 vs 221,000 expected. The Philly Fed manufacturing index was a beat, but still came in negative, at -5.9 vs -10.4 expected. Import prices were a miss at -0.8% vs -0.3% expected. We then saw misses for industrial production m/m at -0.6% vs -0.4% expected, as well as capacity utilization rate at 78.9% vs 79.4% expected. The NAHB Housing Market Index was also a miss at 34 vs 40 expected.??
• Friday, November 17 ends the week with data for building permits and housing starts at 8:30 a.m. ET.?

Here's what we are eyeing next week, November 20 - 24:

Level Highlights:

• $SPX futures had a huge up move on Tuesday following the light CPI numbers with futures trading up from a low of 4420 Tuesday morning to a high of 4524 for a 100+ handle intraday rally.??
• Bulls are fully in control with a “fireworks” type of move this month with $SPX futures up over 300 handles since the beginning of November.??
• 4400 was providing resistance for markets before the CPI breakout - bulls now want to see 4400 hold as support going forward, ideally not trading below the 4420 low from this past Tuesday’s CPI report.??
• While bulls are in control, they may have gotten a bit ahead of themselves this week and are due for some corrective action through time and / or price (price meaning trading down, time meaning trading sideways allowing short term moving averages to catch up to price). Should we see more of a price correction, 4475 is about a 50% retracement of Tuesday’s candle that bulls would like to see hold.?
• Another factor for the bears to pay attention to is some divergence building out between the $VVIX and $VIX. Wednesday saw a red day for the $VIX while the $VVIX closed higher in the green, showing a possible early warning sign emerging from the $VIX market. Early signs from $VVIX can be anywhere from 3 days to a week early, and these can be negated as well so this does not mean markets have to trade lower in the coming days, but this is something to note and keep watching to see if $VVIX continues to be strong despite $VIX staying weak and markets holding up.?

Upcoming News:

• Monday, November 20 starts the week off with the Conference Board's leading economic index m/m at 10:00 a.m. ET.??
• Tuesday, November 21 we’ll get an update on existing home sales at 10:00 a.m. ET and the FOMC meeting minutes at 2:00 p.m. ET.??
• Wednesday, November 22 starts off with weekly unemployment claims at 8:30 a.m. ET due to markets being closed on Thursday. We’ll also get durable goods orders m/m and core durable goods orders m/m at 8:30 a.m. ET. Later in the morning we’ll get the University of Michigan consumer sentiment and inflation expectations index at 10:00 a.m. ET.??
• Thursday, November 23 markets are closed for Thanksgiving.
• Friday, November 24 is a half day for markets with a 1:00 p.m. ET. close. We’ll see updates for flash manufacturing PMI and flash services PMI at 9:45 a.m. ET.?

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Here's Your Chart of the Week:

Via Goldman Sachs: Financial Conditions started to tighten up again in a big way with the rise in interest rates coming into November, but have since plummeted back toward easing territory as markets see some relief

Source: https://twitter.com/WallStJesus/status/1724886062055456783/photo/1

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SPY Daily Update:

$SPY daily chart with a huge rally so far in November. We are bumping into some resistance around the 451 level as markets got fairly extended after the CPI rally onTuesday. Bears are looking for a better price correction into the gap toward 444 support while bulls are looking for the market to stabilize sideways before another leg higher.

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SPY Weekly Update:

$SPY has had a big three weeks, breaking the weekly downtrend and working to establish a weekly uptrend again. Uptrends are formed with higher highs and higher lows, and so far this market has been straight up, so some backing and filling may be needed to establish that higher low before a possible higher high is to come. Bulls are excited now but should remember not to get too greedy after a big run like this.

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-Patrick Hawe

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Disclosures

Patrick Hawe's current positions:

*As of 3:20pm ET November 16, 2023

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