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PPI “Hotter” Than Expected
www.oneoption.com
This morning the producer price index rose .5% and that is well above the .3% that was expected.
PRE-OPEN MARKET COMMENTS TUESDAY – The big news this week will be the inflation readings from PPI and CPI. It will determine the latitude (if any) the Fed has to cut rates. Economic conditions are softening and the market wants the Fed to cut rates. Inflation would keep them from doing so.
The PPI core was higher than expected (.5%) and the Fed has been concerned about this. Last month’s number was revised down to -.1%.
The CPI will be released tomorrow and .4% is expected. The annual inflation rate is expected to be 3.5% and this is higher than the Fed’s target rate of 2%.
Retail sales will also be released Wednesday before the open (.4% expected). This will help us gauge consumption. Consumer sentiment dropped during the last reading.
From a technical perspective, the market has rallied within striking distance of the all-time high. this is a resistance level and it will take good news on the inflation front for the market to breakout. If the market bounce stalls and the candles are tiny and compressed, we have to be mindful that a double top could be forming.
TLT is up this morning which suggests lower interest rates. That is contrary to what we would expect after a hot inflation reading. PPI will keep a lid on the action. Resistance will be strong at this level and traders will wait for the CPI.
From a day trading standpoint, I would be inclined to short any rally that runs out of steam today and I would error on the side of not trading.
From a swing trading standpoint, we are long at lower levels and I would stick with current positions. We would need to see a convincing breakout to a new all-time high before we add.
Support is at the 50-day MA and resistance is at the all-time high.
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