• The S&P 500 has taken off to the upside after the CPI number in the United States came out lower than anticipated.
• The CPI number month over month ended up being 0.4%, instead of the expected 0.6%.
• Because of this, it’s likely that traders are starting to focus on the idea that the Federal Reserve might slow down its interest rate hiking program. If that’s going to be the case, then it does make a lot of sense that we would see stocks rally.

However, whether that’s actually the case remains to be seen, because quite frankly the yearly inflation numbers are still extraordinarily high, with inflation in the United States at 7.7%. If that’s going to get the market excited, I can hardly imagine what it will be like when we get back down to the Federal Reserve target of 2%! In other words, I think the market is probably way ahead of reality, but that would not be the first time we have seen this. Keep in mind that the market is extraordinarily emotional, and volatility continues to be a major feature. If that’s going to be the case, it would not be surprising all to see this as a scenario where we get some type of massive melt up, only to see the market get smacked down in the future.
 

Waiting for a Recovery

I think at this point it’s very dangerous to get heavily involved in the market, but it looks like the short-term target is probably going to be closer to the 4000 level. It’s also worth noting that the 4000 level is an area where it is not only a large, round, psychologically significant figure, but it is also where the 200-Day EMA is currently sitting. In other words, there are a lot of reasons to think that perhaps the technical traders out there will be aiming for the most obvious target.

 Because of this, I think you got a short-term opportunity, but if we fail at the 200-Day EMA, that might be as far as we go. On the other hand, if we break above the 200-Day EMA, it’s likely that we have a much more significant recovery. I do not think this is a trend change though, so keep that in mind as the market has been full of more than once.

(Click on image to enlarge)

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