Yesterday, the market became slightly spooked by the release of higher-than-expected inflation numbers in the United States. The immediate reaction of the SPX to the news was negative, with the index erasing its early gains; the same price action could be observed in the Nasdaq 100 and Dow Jones Industrial Average. Nevertheless, market indices recovered much of their losses by the close and have been trending sideways.
The reacceleration of inflation in the United States represents a hurdle for the FED in its quest to tame inflation (likely causing it not to cut interest rates at the next meeting at the end of January 2024 or in March 2024). In addition to that, it could shatter the investors’ expectations of premature rate cuts if no significant improvement is seen in the next print. In turn, that could negatively affect the stock market down the road.
In regard to technicals, the resistance at $4,800 continues to play a crucial role; if the price manages to break above it and close there (ideally for at least two consecutive days), it will be very positive. The resumption of growth in RSI, MACD, and Stochastic on the daily chart will also bolster a bullish case. However, the flattening of these indicators and a failure of the RSI to break above 70 points will be slightly concerning.
Illustration 1.01 Illustration 1.01 shows the 5-minute graph of the SPX. The yellow arrow indicates the moment when inflation numbers were released in the United States.
Technical analysis Daily time frame = Neutral Weekly time frame = Neutral
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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor or any other entity. Your own due diligence is highly advised before entering a trade.
on USIRYY chart, the 200 month EMA is currently at 3.1% (actual historical average inflation rate going back to 1915). The latest reading bounces off 200 month EMA the second time, we can expect an upcoming retest of the 100 EMA at 3.68% for a few months (corresponding to Q1 2024 inflation) before heading back down once we have a monthly candle closes solidly under 3%, we can conclude the fight on inflation is over