Weekly Wisdom: Are CPI & The Fed Old News?

Greetings fellow traders and welcome to your December 15th 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, December 12 – 16:

• Inflation data was released Tuesday morning with Y/Y CPI coming in at 7.1% vs expectations of 7.3% – this annual pace was below the lower-end of all analysts’ expectations and was a 5th straight decline. CPI M/M data came in at 0.1% vs 0.3% expected.
• Core CPI (ex food/energy) Y/Y data came in at 6.0% vs 6.1% expected; M/M data came in at 0.2% vs 0.3% expected.
• Equities initially had a big boost on the cooler-than-expected CPI with?$SPX?futures reaching as high as 4180 during the pre-market session on Tuesday morning, rallying a quick 150+ handles from the 4000 area futures were trading at before the data release.??
• After the initial data boost,?$SPX?struggled post-open at 4100 resistance and sold all the way back down below the 4000 level.?
• The Federal Reserve raised interest rates on Wednesday afternoon by 50bps and adjusted some of their economic expectations, sending?$SPX?lower.?
• The Fed’s median view of the Fed funds rate at the end of 2024 is now 4.1% vs 3.9% previously.
• The Fed’s median view of the Fed funds rate at the end of 2025 is now 3.1% vs 2.9% previously.
• The Fed sees PCE inflation at 3.1% in 2023 (prev 2.8%), 2.5% in 2024 (prev 2.3%), 2.1% in 2025 (prev 2.0%), and longer-run 2.0% (prev 2.0%).
• The Fed sees core PCE inflation at 3.5% in 2023 (prev 3.1%), 2.5% in 2024 (prev 2.3%), and 2.1% in 2025 (prev 2.1%).
• The Fed sees US GDP growth of 0.5% in 2023 (prev 1.2%), 1.6% in 2024 (prev 1.7%), 1.8% in 2025 (prev 1.8%), and longer-run at 1.8% (prev 1.8%).
• The Fed sees the year-end unemployment rate at 4.6% in 2023 (prev 4.4%), 4.6% in 2024 (prev 4.4%), 4.5% in 2025 (prev 4.3%), and longer-run at 4.0% (prev 4.0%).
• Fed swaps upgrade 50-basis-point rate hike likelihood in February.

And here’s what we are eyeing next week, December 19 – 23:

• $SPX?breaking below 3950 kills our uptrend. Support levels below remain roughly every 50 handles lower starting at 3900. Major support comes in at 3800.
• $VVIX?remains off year lows with the negative divergence we pointed out coming to fruition this week.?
• Market participants need to stay nimble and tactical between?$SPX?3800 and 4000.
• On Monday, December 19, we’ll get the December NAHB Housing Market Index at 10:00 a.m. EST. The housing sector is certainly going to be an important economic gauge to watch going into 2023.
• On Tuesday, December 20, we’ll get November Housing Starts and Building Permits at 8:30 a.m. EST.??
• On Wednesday, December 21, Canada will release their November CPI data at 8:30 a.m. EST.

Here’s Your Chart of the Week:

via Morgan Stanley’s Mike Wilson

Source:?https://twitter.com/WallStJesus/status/1600497220045922311

SPY Daily / Weekly Update:

SPY?has some support at 385 and major support at 380.

SPY?weekly has given another fail off the year’s major resistance trend line – 380 and 370 are major support levels below.?

-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:45pm ET December 15, 2022

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