It hasn’t been easy being green for the stock market in 2022, but it’s happening more often, and each time with a little more conviction.

The pattern of sinking while pondering just how awful things are sets up big moves when things prove slightly better than the worst-case scenario. Ironically, the results could be labeled catastrophic. But beating the Street’s consensus dictates reaction more so than actual results or their implications. Yesterday, inflation wasn’t whipped, but the market was whipped up.

• Russell 2000 (RUT) +2.95%
• Nasdaq Composite (COMP) +2.85%
• S&P 500 (SPX) +2.13%
• Dow Jones Industrial Average (DJIA) +1.63%
• Bitcoin (BTC) +3.04%
• CBOE 10 Year Treasury Yield (TNX) - 0.36%

Heat Map

All eleven sectors in the S&P 500 were higher, led by Materials (XLB) then those growth sectors.  Defensive sectors brought up the rear but were higher on the session. Still, growth continues to lead in August.

Here comes the generals! No war was ever won without great generals leading the charge. Look at these generals. Microsoft (MSFT), Apple (AAPL), Amazon (AMZN, Google (GOOG), and Tesla (TSLA). We see you, Meta Platforms (META), but you must catch up.

Balance Approach

Once again, new highs bested new lows on the New York Stock Exchange (NYSE), and volume was overwhelmingly bullish.

Market Breadth	NYSE	NASDAQ
Advancers	2,753	3,579
Decliners	511	1,079
New Highs	61	70
New Lows	23	78
Up Volume	4.20 billion	4.37 billion
Down Volume	346.58 million	739.26 million

The advance-decline line for the NYSE keeps powering higher, finishing at a very important point on the chart. Thus, 17,690 is former key support, as well as the 200-day moving average.

This chart is replicated across a number of assets and indices. It would be something to see them make a mad dash to the 200-day moving average.

Can the Fed Ease Up?

The day before the Consumer Price Index (CPI) report, the bond market was looking for a 75-basis (bps) hike at the next Federal Open Market Committee (FOMC) meeting. Now, there is a 57.5% chance of a 50-bps hike.

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Main Street Pain

Energy inflation eased to “only” 32.9% from 41.6%, but food edged higher to 10.9% from 10.4%. Food at home climbed to 13.1% from 12.2%, while food away dipped to 7.6% from 7.7%.

Portfolio Approach

We are adding a new position to Industrial in our Hotline Model Portfolio and made some sector changes.  If you are not getting our recommendation, subscribe to our Hotline service today.  Email info@wstreet.com. 

Today’s Session

Produce Price Index

Major equity indices were edging higher when the PPI report came in below consensus.  On an annual basis, the 9.8% increase is the lowest since last October, and down significantly from 11.3%.  The street was looking for 10.4%.

Final Demand

Total final demand -0.5% against consensus for +0.2%, reflecting a 16.7% drop in gasoline prices and -9.0% decline in energy overall, which made up 80% of the decline.  Excluding food and energy, final demand rose 0.2% against consensus of up 0.5%.

Technical View

Back in July, the S&P 500 made a hammer reversal (see circle), followed shortly thereafter by three white soldiers (bullish), and yesterday, a strong breakaway gap opening.

Meanwhile, the index is breaking through serious resistance area.

The debate rages on about whether this is a bear market bounce, even though the major indices are up 20% from their lows.  For now, it’s just important to try and take advantage.

Comments

If the Biden Administration keeps handing out Free Money and benefits, the Fed will have to raise rates in 2023 to try and clip the wongs of soaring inflation. P Krueger on 8/22/2022 2:19:54 PM

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