The Big CPI Print

12/9/21

STOCKS – BA, CMG,

MACRO – FDN, SPY, XBI

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The S&P 500 finished the day lower by around 70 bps, but it was weaker than that across most indexes. The NASDAQ Comp fell 1.7%, and the Russell 2000 lost 2.25%. It isn't likely to get much better either with the big CPI report tomorrow.

President Biden indicated that inflation would be high, but he gave no context. So, what we care about is what the street expects, and estimates are for 6.8%, which would be higher than last month's reading of 6.2%. But again, "high" could be 5.9% for all we know, so I take comments as a way of stating the obvious. What matters is the 6.8% estimate.

Based on the price of oil and gasoline, I find it hard to believe that CPI will be above 6.2%, but I don't have a quantitative way to figure that out other than looking at the chart and based on past correlations.

So a huge miss on CPI could be seen as quite the negative for the equity market. The Fed is highly likely to accelerate the Taper, regardless of tomorrow's CPI reading. There is no way CPI will be anywhere low enough to give a pause to the Fed's tapering pace. But if CPI misses, it could be seen as a sign of falling inflation, but for all the wrong reason, mainly weakening demand.

If you are a bull, you want the CPI to come right around expectations. You don't want anything with a seven-handle or below 6.2%.

S&P 500 (SPY)

The S&P 500 closed right below technical support of 4,668. That is not enough to mean anything. I believe that we will see lower prices tomorrow and that the gap at 4600 gets filled soon. The case for the triple top pattern strengthens, as does the right angle descending broadening wedge.

Biotech (XBI)

There was a lot of pain again today in technology and biotech. The XBI erased much of the gains it saw earlier in the week after trying to clear resistance at $115.60.

Technology (FDN)

The DJ Internet ETF (FDN) fell nearly 1.5% after hitting resistance at $233. It still has a gap at lower prices to fill. This ETF and many stocks were so oversold that they got big bounces, and now they are starting to get sold again.

Chipotle (CMG)

But even Chipotle has been hammered. The stock hit oversold levels on the RSI, finding support at $1570 and then rebounding to $1750. It only fell 1% today, but I get the feeling the selling isnt' finished here yet either.

Boeing (BA)

Even Boeing has hammered and also hit oversold levels on the RSI, filled the gap, and is now failing to advance past the trend line. I get the feeling this stock has a date with $165 and an eventual gap fill down at $155.

Anyway, that is all for today.

Mike

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