This morning I asked everybody if – based on the Consumer Price Index (CPI) coming in at expectations –  they thought the market was starting a bull run.

I wanted to know how many of you thought that the market finally put in a bottom and was prepared to go another 20% higher in the next two months.

Most of you realized that this was a little bit of a trick as I normally just ask if we are going higher or lower in the next four to six weeks.

Well, you all held true and do not believe that we have hit a bottom quite yet. 

And I wholeheartedly agree.

Let’s take a look at the Investoco QQQ Trust Series 1 (QQQ) and creating a technical crossroads for the market in reaction to an ‘on target’ CPI

$260 is the current ‘market bottom’ and QQQ has tested this level three separate times.

Generally speaking, the market doesn’t put in a triple bottom and when we do there is typically a strong rally following the one that will hold.

Right now there is a bit of hesitation.

What we are seeing as the QQQ continues to test this level is the market resisting going into the despair phase.

And these bottoms were all followed by a rally ahead of a market event.

These events like the Fed minutes and CPI were a result of the hope trade thinking “this could be the catalyst that brings the market back” 

I’ll tell you this if we had the CPI come out and inflation was down 3/10 of a percent, sure we would have broken the $300 level on the QQQ and ripped higher.

But that is a pipe dream if I’ve ever seen one…

We came in at expectations and the bands are tightening, there is a neutral 50-day moving average (MA50) and a bearish 20-day moving average (MA20) and QQQ is being rejected by the top of the regression channel.

On top of that, I looked at how the market has performed as a reaction to the CPI for the last 12 months and this is what I found…

This is a look at how the S&P 500 (SPX) performed on the day of the CPI and the day after as well as the net result.

Now, as a result of the CPI for the last year, we have averaged a .8% drop in SPX by the end of the following day.

And if you look up in March when we were in line with expectations – as we are today – you’ll see that we saw an even larger drop of -1.7%.

Everything you can find points to the market going lower, and traders see that..

This makes the market start to search frantically for something else to latch onto – and today that ‘thing’ is going to be earnings

Earnings are set to kick off with the banks as usual and they are going to set the tone for the rest of the companies to follow.

If we are going to see the market go higher, the banks are going to need to save the day with good earnings reports to show us that corporate earnings are not going to suffer this quarter.

And if my report from Tuesday sheds any light on that, we are going to be in store for a bumpy ride where we could break below that $260 level on QQQ and keep going.

Make sure you join me tomorrow for the Long and Short of it at 9:45 in the main room so I can break down how I plan on trading these banks and the QQQ as earnings start to hit the docket. 

 

 


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