Morning Notes – 8/10/2022

Good Morning:

• Today, we will be in the Trading Room dealing with the aftermath of the CPI (consumer inflation) report.
• Overnight inventory is slightly net long. Traders could not drive below yesterday’s low, though they got close. With the CPI report looming, I am not sure that the overnight trading matters. But if we get a True Gap at the open, apply Gap Rules.
• The bulls still have the short-term hat tip – but higher prices would not negate the bear until they exceed 4300 and find acceptance above the level.
• Yesterday’s price closed below the Algo trigger and 5-day line, shifting our stance from neutral to slightly bearish short-term.
• It is hard to believe that the CPI report will exceed expectations. Likely, it will please investors and give us one more thrust to 4200 or so before this rally finally peaks.
• Notably, the White House gave no advance warning about a bad inflation report this month.
• Not surprisingly, today’s DEM shows increased volatility at 70 points plus or minus yesterday’s settlement. Today’s range will be 4055-4195.
• The WEM remains between 4060 and 4235. Note that the DEM allows for a slight dip below the WEM.
• While I would expect strong support at the WEM/DEM low around 4055-4060, these levels are often exceeded mid-week before the price returns to range by Friday’s close.
• Exhaustion signals continue to paint at current levels. We remain in cash in the swing strategy.
• As of yesterday, and depending on the opening price, resistance today is at 4135, 4155, and 4180. Support is at 4120, 4105, and 4090. As always, if the price breaches a level, it reverses polarity.
• The question is how much further this FOMO rally takes us before the price rolls back again. How much it moves back lets us know whether the intermediate bear is over or will resume. We believe one more thrust higher has the highest probability, and then the price should roll over into options expiration in a week.
• Higher remains the so-called “pain” trade.
• The domestic and geopolitical landscapes remain risks to the economy and financial markets.
• 4180 was my original target from June 17th, and we tagged that level Monday. 4211 was my most optimistic threshold and is still possible.
• Our swing strategy is to hold cash for lower prices.

As always, stay tuned.

A.F. Thornton