Markets Celebrate Lower CPI - Midweek Update
Premium Section: How to Profit from Market Maker Cycles
The Consumer Price Index (CPI) came in 0.1% lower than expected and markets celebrated as the S&P 500 (SPY) jumped about 1.21%. The Fed kept rates unchanged, but the sobering (and slightly hawkish) Fed Speak during the press conference caused some profit-taking. At the end of the day the SPY was up 0.81% for the day.
Referring to the chart below, you can see that SPY continues higher, trending on the 9 and 21 EMAs. It may be a bit extended from the 9 EMA, so some catch-up may occur where either price drops down to the 9 EMA or price goes sideways as the 9 EMA catches up. The RSI is in overbought territory so some back and filling is expected to work off overbought conditions. The uptrend is intact as MACD shows positive momentum. The DMI confirms that the SPY is in an uptrend, as the ADX is low. If ADX continues higher, this trend could have legs. With the McClellan Breath Oscillator pointing up as Net New Highs in the S&P 500 and Nasdaq 100 continue, this strong market could continue moving higher, even with an overbought reading.
On another note, the cycle bracket for the SPY renews on 6/21, so there could be some profit-taking soon. We suspect that the market could weaken a bit around 6/15 when the stock buyback blackout goes into effect. We welcome a pullback if it comes, as that would be an opportunity to accumulate equity exposure in anticipation of the Independence Day Rally, which usually begins in the last few trading days of June.
The breadth picture is improving as the Nasdaq 100 Bullish Percent Index ($BPNDX) breadth indicator sets up for another run higher. You can see in the chart below how the BPNDX jumped above the 10 EMA as it’s RSI indicator crossed the 50 mark showing strength. Meanwhile, the MACD appears to be preparing for a bullish crossover. If Nasdaq 100 breadth makes another leg higher, it could power a risk-on rally to new highs.
The Intermarket picture is improving as the 10-year Treasury rate (TNX) and US Dollar (DXY) dropped below their respective 21 EMAs. If the TNX and DXY trend lower, it would be a tailwind for higher prices in risk assets/equities.
Offensive sectors are leading the way as Technology and Consumer Cyclicals are this week’s top performers. This rally is starting to show a more risk-on character.
Finally, we can see that it is Smart Money that is buying, as Dumb Money may be frozen in fear.
Conclusion: We believe that the market could continue higher off improving breadth and constructive Intermarket dynamics. However it’s wise to have a plan to take profits, especially as the SPY is stretched from it’s moving averages just before the corporate stock buyback blackout period begins around June 15th.
In the Premium Section we’ll go over the Market Maker Cycle, which is the key to good trade entries and good exits. This technique could forever improve your trading so if you have been enjoying our research, you’ll want to join for this.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.