The stock market had an impressive showing today. Market participants were motivated by the cooler-than-expected Consumer Price Index (CPI) for October, which showed a welcome moderation in the year-over-year changes for total CPI (to 7.7% from 8.2%) and core CPI (to 6.3% from 6.6%). The major indices all closed at, or near, their highs for the day, underpinned by healthy buying interest, short-covering activity, and a fear of missing out on further gains.
October Consumer Price Index: +0.4% vs. +0.7% expected and +0.4% prior. Y/Y, CPI: +7.7% vs. +8.0% expected and +8.2% prior. That represents the smallest 12-month increase since January. The index for shelter contributed more than half of the monthly increase in the headline number. Food and energy prices also increased in the month. Core CPI: +0.3% vs. +0.5% expected and +0.5% prior. The slower-than-expected pace of inflation will give the Federal Reserve's policymakers some breathing room to ease up on its 75-basis-point rate increases and shift down to 50 bps when they meet next month. The CME FedWatch Tool now has an 80.6% probability of a 50-bp rate hike, up from a 56.8% probability a day earlier.
Yesterday's CPI report, will likely decrease risk perceptions regarding the probability of the Fed being forced to tighten monetary policy to a degree that would induce recession. In particular, market expectations of the Fed’s so-called “terminal rate” may decrease. This would cause the cost of financing across the economy to decrease and overall financial conditions to ease somewhat. This should provide a positive boost for both bond and equity markets.
From tech side of analysis, yesterday's "gap" is not common gap, and will not tends to fill as well. Therefore, this month's report may provide a “window of opportunity” for bonds and stocks to rise during the next month, until the next CPI report comes out. However, after huge increase yesterday, SPX and major indices are already extended from 8&21 emas, therefore, I will be patient and wait for "time correction" .
SWKS
on Wednesday's low, I prefer to take small amount of profits or possibly a simple breakeven trade here. For today, I prefer the market would likely to give a "insideday" doji and wait for ema correct back to price area. I would caution that the internal details of this report, although generally positive, may not be quite as bullish as they appear on the surface. Much of the deceleration in both All-Items CPI and Core CPI was due to a few volatile components, which may not be representative of underlying inflationary trends.