It’s a pure green morning, folks, and there’s no doubt that the world is front-running the CPI number, which will roll out in less than twenty-four hours. Thus, for the second time, the bulls are trying to reach escape velocity from the nearly month-long base they’ve hammered out between 3800 and 3920 on the /ES futures market.
Taking a big step backward, you can see the face-off happening between overhead supply and the present setup. The enormous spike on December 13th which commenced the market’s reversal was, ironically, the last CPI that came out, but for some reason folks figure it’ll be great time this.
A look at the NASDAQ futures illustrates that, although the bulls are firmly in grasp of the baton right now, they have a staggering cloud bank of overhead supply to dealt with. The market has been an enormous convoluted mess since mid-June, as an endless tug-of-war has been taking place (whereas, prior to mid-June, the market was in a reasonably steady sell-off).
From a very long-term perspective, it would be simple for either side to make their case. From the bullish perspective, it looks like virtually all the excesses of the Covid madness have been wrung out of the system, as the NASDAQ Composite has tagged its multi-decade trendline. The last time it did that was at the Covid crash bottom, and we all know what happened after that.
The bears, on the other hand, could point to an even longer-term chart of the Dow Industrials (going back about a century) and show that the market’s weakness for the past year has barely even taken a nibble out of the excessive valuations.
For the moment, one thing I think we can all agree on is that volatility has been smashed to smithereens, and the 20 level we’re at is definitely at the lower end of the range that’s been in place the past few years.
For myself, I am going to do virtually nothing until the CPI is actually out and the market has had some time to digest the news. I’ve got over 20% cash and, for me, a relatively tame 24 positions, most of which expire several months from now. Good luck, and for those of you who are just sitting around waiting until the big day tomorrow, try to beat the boredom.
