Weekly Preview for Dec 11, 2022 - CPI, FOMC
What a week we have ahead of us. This is the week where accounts can blow up in either direction if you are not careful. Blind chart analysis can shift in an instant with the fundamental events we have, so make sure you are 100% confident in the trend if you are going to ride out a play for more than a few minutes.
Economic Data this Week (all times are EST)? -
- Check the full calendar here: stonks.chat/feed/catalysts
- This week is LOADED
- Monday - UK GDP (DXY ramifications) in premarket
- Tuesday - CPI at 8:30am (major data release)
- Wednesday - FOMC Economic Projections at 2pm
- Wednesday - FOMC Press Conference with Papa Powell at 2:30pm
- Thursday - BoE (UK) and EU Interest Rate decisions - DXY implications at 7:00am
- Thursday - US Retail Sales at 8:30am
- Friday - PMI at 8:30am
THE PLAYS OF THE WEEK for SPY:
Let's recap what we know in the market so far:
- JPow was dovish in tone and has all but guaranteed 50 BPS hike in December.
- Jobs Data came in way too hot. Wages went up as did the Job numbers.
- CPI and PPI showing inflation is cooling a little
- Oil is falling
- TLT (bonds) is rising
- DXY is above 105 which has been prior support
- VIX is hanging out near 20
- FOMC and CPI are scheduled for next week.
- PPI data came in above expectations but lower than the previous month.
Here is the truth, no one knows what direction we are headed. There is conflicting data all over the place and the best we can do is have a strong hypothesis of what we can expect in the short term and long term. So, when we are previewing this data, just know that I will be hedged for either direction.
CPI Preview -
Twitter user @TradrNate did an amazing job breaking down the previous CPI reports and there impacts in the market. I highly recommend taking a look at the tweet at the end of the post.
twitter.com/TradrNate/status/1...
twitter.com/TradrNate/status/1...
CPI is rumored to come in lower than the previous months cooler reading, and thus continue the momentum going for the peak inflation narrative. The Core inflation rate is major reading that matters and it is set to come in at 6.1% compared to last months 6.3% reading. So lets layout the scenarios for this data:
- Core CPI comes in below 6.2% - This will be a bullish move in the markets. The data now backs up that JPow's aggressive moves are working (albeit slowly) towards lowering inflation.
- Core CPI comes in at 6.2% or 6.3% - This will be an initial bearish move and then a bullish recovery imo. Look for a similar move from Friday's PPI.
- Core CPI comes in above 6.3% - This will lead to a selloff in the markets. That would mean the bullish CPI report from last month can be treated as a one off.
I will be playing a strangle on this data release.
FOMC Preview -
FOMC is where the fun really begins. JPow is the one man that can shift any trend and create major moves in the markets. One very very important note about this FOMC meeting is that we get the economic projections for the Fed Funds rate. This was not in the last meeting so this was last updated in September. The fed funds rate was projected to be 4.4 in 2022 and 4.6 for 2023. JPow let us know that the Economic Projections would be higher if they were released in the last meeting, so we can safely assume that near 5% is on the table for 2023.
The next section is purely my opinion and prediction for FOMC and how it will play out So please take everything I say with a grain of salt.
I anticipate that the market will initially move down on the release of the data at 2pm. Then I think JPow will talk the markets up using bullish buzzwords, and be the same kind and gentle JPow that we last saw a few weeks ago. The market will then blast higher while he is speaking, as they believe JPow is satisfied with his efforts and the pain is over from the Fed.
HOWEVER... the market will start to move down as it digests the data from the economic projections and realize that the Fed is actually going to keep raising rates and have no intentions to pause until more data allows them to. This will lead to a massive selloff and I believe will officially be the end of the inflation trade and the start of the recessionary trade. This will trap and hurt a lot of folks, so be nimble.
How I am playing FOMC. I will be doing a strangle before the 2pm release and will close out the put side at the data release. I will then hold the call side as I anticipate the kind and gentle JPow. I will then close the call side out once the market shows a reversal back down. Until then, I will ride it up and start grabbing core puts for Feb or March at key levels. But I need to see a reversal first and those economic projections must have 5% on them. If they do not, then my theory is dead and we are headed for a major Santa Rally.
The next section is purely my opinion and prediction for FOMC and how it will play out So please take everything I say with a grain of salt.
I anticipate that the market will initially move down on the release of the data at 2pm. Then I think JPow will talk the markets up using bullish buzzwords, and be the same kind and gentle JPow that we last saw a few weeks ago. The market will then blast higher while he is speaking, as they believe JPow is satisfied with his efforts and the pain is over from the Fed.
HOWEVER... the market will start to move down as it digests the data from the economic projections and realize that the Fed is actually going to keep raising rates and have no intentions to pause until more data allows them to. This will lead to a massive selloff and I believe will officially be the end of the inflation trade and the start of the recessionary trade. This will trap and hurt a lot of folks, so be nimble.
How I am playing FOMC. I will be doing a strangle before the 2pm release and will close out the put side at the data release. I will then hold the call side as I anticipate the kind and gentle JPow. I will then close the call side out once the market shows a reversal back down. Until then, I will ride it up and start grabbing core puts for Feb or March at key levels. But I need to see a reversal first and those economic projections must have 5% on them. If they do not, then my theory is dead and we are headed for a major Santa Rally.
SPY Technicals -
- SPY Technicals - The 30 min is close to oversold. 1 hour, 4 hour and daily chart are neutral.
- SPY is broke under its daily 200MA at 404.79. This MA was the top of the last bear market rally.
- SPY Fibs for ATH to June 2022 low - 390 is the .236 line.
- SPY Fibs for COVID low to ATH - 380 is the .382. 418 is the .236.
- Bottom line is Bulls need to break 400 and bulls need to break below 390.
Levels I am Watching -
- $SPY - levels 380 > 386 > 390 > 393 > 396 > 400 > 403 > 410
- NOTE: I am turning into a swing trader for various reasons, so please keep that in mind moving forward. My options plays will be always a few weeks out because of this.
- This is not financial advice
SPDR S&P 500 - SPY
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