CPI Hangover. Will Get A Repeat From December?
Stocks are under pressure as banks begin earnings.
Technical Edge —
NYSE Breadth: 78% Upside Volume
Advance/Decline: 76% Advance
VIX: ~$19.50 — Sub-$20 and just hit its lowest level since April.
The CPI data is now out of the way and we don’t have to worry about the Fed for a couple of weeks now. However, after an in-line inflation report, the market is now pricing in a more than 90% chance of a 25 basis point increase in February.
While the Fed continues to talk about getting interest rates up to and above 5% and keeping them there to quell inflation, investors are seeing that we are likely near the end of the rate-hiking cycle.
Now we have earnings season kicking off today with the banks. So far, all the big names are down, including JPM, BAC, C and WFC. I am most interested in hearing JPM CEO Jamie Dimon’s comments, as he seems to take the best pulse of the economy.
After a better-than-expected CPI reading in December, the S&P futures promptly faded almost 400 points or nearly 10% and settled into that prior 3800 to 3900 trading range.
I’m not saying we’re setting up for a 400-point fade necessarily, but instead, I’m just saying that bulls ought to be aware that price action trumps all — even when the economic reports seem to be in their favor.
S&P 500 — ES
The ~3955 area is key (yesterday’s post-CPI low). If we trade there, let’s see if the ES can generate a bounce.
However, a break below this zone opens the door down to 3920 to 3928 (the 10-day, 50-day, a key pivot and last week’s high). That zone must hold for the bulls to remain in control.
Below it puts 3900 in play, then 3891 (this week’s low) and 3988.
On the upside, 3985 and 4000 are key. Then 4021 and 4030.
SPY
Running into the 200-sma, the $396.31 gap-fill level and the 61.8% retracement, the SPY is on watch for a possible disappointment.
Let’s see if buyers come in around yesterday’s low of $392.42. If they don’t, it opens the door down to $390, which has to hold for bulls to remain in control.
Below that opens the door to $386.50 and $383.80.
That all said, if the SPY can take out yesterday’s high, $400 is in play, then potentially $410.
QQQ
The QQQs are rallying into prior support, along with the 21-week and 200-week moving averages, and the 50% to 61.8% retracement zone.
If the bulls can clear it — meaning over $282.70 — the Q4s highs are in play.
For now, keep an eye on yesterday’s low at $273.75. A break of that puts the 10-day and last week’s high at $270.15 in play.
ULTA
As you know from our Relative Strength list below, Ulta has been a top focus for awhile now. Keep an eye on the low-$480s.
I want to be long on a test of the 10-day moving average. If this area holds as support, $490 to $495 is our first target, then $500. On the downside, $475 seems like a reasonable stop-loss at this point.
DAL
Down on earnings this morning, let’s see if we can get a test of the 10-day ema (active support) and the prior b/o level in the $36 to $37 area. An entry close to the gap-fill — $36.07 — is most ideal.
If this area holds as support, $38 to $38.50 is a good trim spot.
A lot of Relative Strength in airlines lately.
Personally, I prefer a smaller position size, so I can have a wider stop-loss. I like $34 as my stop, as it keeps it below the larger moving averages.
Open Positions
A note: After talking to some members, I want to make the setups a bit more clear. We are a trade-ideas service, but want to make entries & exits simpler to understand. We will be sending more updates, a few educational pieces and looking for a way to make our setups more clear in how we are managing them.
Numbered are the trades that are open.
Bold are the trades with recent updates.
Italics show means the trade is closed.
— Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be, B/E or better stops.
From this latest round, that includes TLT, DE and FSLR.
TLT — Down to ⅓ after TLT’s strong push to $105 on Friday. Raising stops to $100 or $101 and (I personally) am just leaving a runner against the stop.
Now you can handle this however you want. $106.31 is a gap fill, so is $108.16 and there’s always the declining 200-day sma for the optimists.
DE — Trimming down to ¼ on any push over $440. B/E stop or consider $425 as a new stop. Congrats! Hit 439.88, close enough for some, but will keep the update here.
COP — Long from $119, the 2x weekly-up. $124 to $127 could be a reasonable trim spot. (Keep the 50-day in mind, so maybe ⅕ to ¼ trim there just for lunch money).
$115 Stop. Maybe consider getting down to a ½ position if we get back to our basis. I don’t normally like to do that, but yesterday’s action was tricky.
FSLR — ½ position, long at $157.75 — Third trim hit as FSLR has run to ATHs. Can be out (I’m out) or carrying just ⅕ to ¼ of a position now.
BRK.B — ½ position — Strong close yesterday and now we are looking at a weekly-up/2x monthly-up rotation.
Stop at $312.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
SBUX — nicely weekly-up setup after 10-week ema reset.
DE
SMCI
TJX, ULTA — looking for pullback here to active support (10-day) given the bearish update from LULU.
CAT
Airlines — AAL, DAL, UAL
CAH
MRK
BRK.B
LNG
LMT, RTX, NOC — RTX best of the bunch
MET — weekly
GIS
HON — weekly
FSLR — $140 is the 21-week sma and retest of prior resistance
XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)
Economic Calendar
