Pre-Market Outlook – 5/12/2021

The headline Consumer Price Index inflation number was released this morning, showing an annualized inflation rate of 7.2%. Surprise, surprise? Apparently so, as the consensus expectation was more along the lines of 2.4%. What planet are these economists living on?

Up until that moment. I would have written that overnight futures traders in Asia and Europe could not push the S&P 500 index to new lows, a bullish sign in the short term. Even after the Government released the headline number, the S&P 500 plunged 50 points, recovered, but is now heading back down again. In fact, overnight traders tested both ends of yesterday’s range but could not find acceptance above or below. Again, I carry that forward as potentially bullish in the very short term.

That sets us to open inside yesterday’s range, with overnight inventory net short. So we may see a counter auction higher at the open, though there is little else to guide us and the pre-market volatility may negate the counter auction theory. The Nasdaq100 and S&P 500 are now trading below their 21-day EMAs, which tips my macro bias negative.

We will be gapping back down into yesterday’s large range. While yesterday’s rally and relatively strong close seemed bullish, prices did not fill yesterday’s large gap. Prices filled it only fractionally. This still left a very large void above yesterday’s high. 

Value (where 70% of the volume traded) broke decisively lower from Monday. Last night’s overnight activity stopped right at the Value Area High, indicating that sellers are still in control. As set forth above, the CPI data release did take prices below yesterday’s low briefly. Undoubtedly, traders ran the stops under that low, but I still carry that forward as price exploration.

As the overnight high around 4150 stalled at the Value Area High, I will trade from the framework that sellers are dominant, and we should sell rallies unless we find acceptance above that level. Carry forward yesterday’s regular session low at 4103.75, as it was at a very technical level that is visual and mechanical for all traders. That could make this low weak should it be revisited.

Bottom line, bearish below 4150 today. But also carry forward that the overnight low at 4095.50 breached the regular session low at 4103.75 (also the prior support level from April). For now, those lower prices were rejected. Always remember, however, that overnight trade has less importance than regular session trade. Retesting the overnight low would be a bearish signal this morning and potentially put the daily 50-day line into play on the S&P 500 in the 4040 area.

A.F. Thornton