U.S. Inflation Report May Shock Markets
Michael Kramer | Aug 10, 2022 17:34
The S&P 500 finished lower yesterday by around 40 bps, with the index finding support multiple times around the 4,110 to 4,115 levels. The index also managed to close below the lower end of the rising wedge pattern, and it looks like the 2b reversal pattern may also be playing out. If the two patterns play out as I expect, we could see 3,950 in the near term.
The IEF/LQD ratio moved higher today and for the first time since July beyond the downtrend. It could be the start of something, and we will need to see a further move higher today. Financial conditions have eased significantly over the past month, which has acted as a tailwind for stocks. Should conditions begin to tighten, they will serve as a headwind.
Today's CPI report will have a big say on whether financial conditions tighten further or not. The estimates are for 8.7% y/y, while the Cleveland Fed estimates that July inflation rose by 8.8%. However, the actual CPI report on a y/y basis has come in hotter than the Cleveland Fed estimates every time since the fall of 2021. A hotter than expected CPI would come as a shock to the market, which has bet on peak and inflation and a dovish Fed pivot. But a higher than expected number could trigger higher rates and tighter financial conditions.
The HYG may be sending a very subtle message on the matter, as it sits at a support level of around $77.50. Additionally, the RSI has fallen below the uptrend and is starting to trend lower. A break of support at $77.50 probably pushes the HYG to $75.75.
Get The App
Roblox (NYSE:RBLX) reported weaker than expected results, and the stock is down sharply. The conference call is today, so it will be essential to see what the company says. It reported solid booking for July, with a return to growth, which is a positive. The $37.75 level is a region of solid support that needs to hold.
The SMH ETF fell below the 10-day exponential moving average yesterday, and in the past, when that has happened, it has not been a good sign and tended to result in the start of a new leg lower.
Finally, Bitcoin is very close to a big break lower and out of a bear flag, with a chance to revisit $17,000.
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.