Morning Notes – 8/12/2022

Good Morning:

• I don’t blame him, but good ole Joe thinks inflation is tamed. However, we all know that if you live by the numbers, you can die by them too. We will see what happens next month.
• And, as President, you will get the blame for all the bad news, so why not take a victory lap for the good news? Some prices were indeed flat month over month. But year-over-year inflation is still running in the 10% range according to government statistics, which means the actual rate likely is double the stated rate.
• And inflation is a cost-push driven by deglobalization around the world. Cost-push inflation is difficult to tame and may not respond to demand destruction.
• And the truth is that neither Joe nor the Feds are much in control of these economic issues, as there are much larger forces at work. Inflation remains at historic highs, and unemployment claims are steadily rising. 
• One huge problem is that global conflicts are driving capital to the safety of the American dollar.
• Lack of confidence in governments worldwide and the European Central Bank has as much to do with the inflation as anything else.
• Today’s DEM shows decreased volatility at 27 points plus or minus yesterday’s settlement (close) at 4209.75. Rounded, the options market set today’s range at 4180 to 4240. The WEM remains between 4060 and 4235. 
• So you are likely to see pinning around the 4235 to 4240 level where the DEM and WEM highs intersect. Depending on the range, this is one of those days that could be rotational and may not lend itself well to day trading.
• The Algo has painted exhaustion signals in the last few sessions. The structure below the market, especially Thursday’s gap higher, keeps the market vulnerable to liquidation breaks.
• In this writing, resistance today is at 4235 (the WEM high) and 4260 (yesterday’s high). Support is now at our key 4211 level, then 4200 and 4175. As price breaches a level, it reverses polarity.
• For the bull case, the market needs to retain the 4211 level. And while we remain neutral at these levels, we would turn bearish if the market starts closing below the 5-day line and Algo trigger.
• There is nothing that prevents the market from moving higher to 4300. Higher remains the so-called “pain” trade.
• It feels like we saw the bears capitulate the last few sessions, which could lead to the end of this rally or reversion to the mean at 4185 or so.
• Negative sentiment continues to allow the market to climb the wall of worry unless or until the bear reasserts itself.
• The market is close to retracing half of the bear, which would be a milestone. But acceptance above 4300 is the only certain confirmation that the bear is over. Otherwise, the intermediate trend is down, while the short-term trend is up but exhausting.

 As always, stay tuned.

A.F. Thornton