Inflation & Crude Oil

The Consumer Price Index (CPI) released last Wednesday gave the financial media plenty of material to write and talk about. There is little doubt inflation plays a major role in the Federal Reserve's decision as to when interest rates will begin to rise, but spending so much time focused solely on the CPI seems premature since the Fed uses the Personal Consumption Expenditures price index (PCE) and it won't be released for another two weeks. More follows in the Market Review including an update for WTI Crude Oil.

S&P 500 Index (SPX) 4173.85 ended the week 58.75 points or -1.39% lower after declining 89.06 points on Wednesday following the CPI report. The odds were good that support at the 50-day Moving Average would hold and indeed, it did for the fourth time since the October 30 low, one that was well below the average before rebounding. Wednesday it declined down to 4056.88, then closed at 4063.04 just above the 50-day at 4049.94.

In addition, the yield on the 10-Year Treasury Note added 5 basis points on Wednesday closing at 1.69%. No doubt, the CPI report was a factor along with the Treasury auction of $41 billion of new 10-year Notes. Thursday it made an indecisive inside range day recovering about one-half of Wednesday's decline. Then Friday's advance confirmed the pivot made at support on Wednesday ending the pullback that was nothing more than a slight stumble for the bulls. Since the 50-day Moving Average does a good job supporting pullbacks, Friday's new level ended at 4063.90.

CBOE Volatility Index® (VIX) 16.69 advanced 2.12 points or +12.70% last week after spiking up above 28 on an intraday basis both Wednesday and Thursday. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, ended 2.10 points or +16.71% higher at 14.67%. The six-month chart below shows the quick spike up and return that some use as buying signals.

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Disclaimer: is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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