The S&P500 ($SPX) tried to rally back to the 50-day moving average, and briefly got past the downward trendline. But the initial move was no match for the latest inflation report, which sent stocks back below the 200-day moving average.
2022-02-13-SPX Trendline Analysis - Daily
The ADX remains bearish. The price/volume signal moved back to a downtrend, as the index sliced through the 200-day moving average on higher volume. Friday's close also put the index back below the Jan 21st follow-through day.
2022-02-13-SPX Elliott Wave Analysis - Daily - Primary 2
The Elliott Wave signal remains bearish as well. The SPX tried to break through resistance at the 61.8% Fibonacci level of Intermediate (1) on Wednesday and Thursday, but retreated on both attempts. On Friday, the index fell farther, losing support at the 38.2% Fibonacci level.
Following January's surprise jobs report, January's consumer price index also surprised to the upside, showing a 7.5% increase year over year, above the 7.3% expectation. Core CPI (which excludes food and energy) was still up 6%.
Those readings sent yield on the 10-year Treasury past 2% for the first time since 2019. And as expected, rate sensitive stocks took a nose dive (we see you $QQQ). St. Louis Fed President Bullard added fuel to the fire by calling for raising interest rates by 1% by the end of June.
While it's highly likely that we're at the peak of y-o-y inflation readings, it's also highly likely that the price increases we've seen over the past year are going to be around for a while (i.e. they're sticky).
The next policy meeting occurs in March (15th-16th). On Friday (Feb 10th), the Board announced a closed door meeting, taking place under "expedited procedures", to take place tomorrow (Monday, Feb 14). There's speculation that this is an emergency meeting to raise interest rates, in response to the higher than expected CPI numbers.
We know that interest rates are headed higher. Now we need to watch GDP releases. Slowing growth and rising rates are the land of bear markets; next release is Feb 24th.
We're also coming off the highest level of margin debt ever (as a percent of GDP); higher than the peak in 2000, 2008, and 2018. With rates set to rise, margin debt is about to get more expensive. And the sectors benefiting the most from margin on the way up will be the ones punished on the way down.
Hopefully, you've used the run-up to reallocate your holdings, book longer-term gains and cut your losses. At the very least, now is not the time to go all in. The markets will get back into bull mode eventually (they always do).
And let's not overlook the current situation in Ukraine. Hopefully cooler heads prevail.
Best To Your Week!
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