A Few Key Levels on the S&P Before the CPI Print
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Our View
After a very quiet, low-volume grind yesterday, things are set to change this morning. Some models are calling for a higher-than-expected CPI number, at 6.8% vs. 6.5%. That would be a disaster for the S&P, although I do think there is a possibility that the ES could shake off the weakness and rally — a “possibility,” not a certainty.
We talked about the German Dax yesterday and for good reason. This thing just continues to scream higher. It settled at 15,855 on the last trading day of Dec 2021 and we are currently trading 15,050, only down 800 points, down just 5% from where it settled at before all this mess began and down just 7.5% from the all-time high.
Germany is facing a far tougher situation than the US. The energy shortage is killing Europe and while the Russia-Ukraine conflict isn’t on their doorstep, it’s on the same street, so to say. Not to mention, inflation is still a big pain point over there too.
Despite all that, the Dax is creaming higher and is now higher by more than 26% from the October low. The S&P 500 bottomed a little later in October and is up 13.7% from that low. So if you’re looking for relative strength in the indices, the Dax is where you’ll find it for now.
Our Lean — Danny’s Take
The PitBull says that the first two weeks of the new year are always tough and I have to agree. To summarize, the CPI number will have the futures up or down 100 points. If the ES gaps higher I am selling the open. My guess is there will be a lot of trade between 8:30 and 9:30.
It's kind of a separate 1-hour session until the day session, given the binary nature of the CPI print. Either it’s low and the bulls get another catalyst or it’s high and they get run over.
Remember the December 13th CPI report when the ES rallied 3.85% and although it still closed higher on the day, settled lower by 3% from the high? That came on lower-than-expected inflation results across the board, so the action can be quite tricky here.
Our Lean: