Weekly Indices Review - 11 January

‍

Ahead of the crucial US CPI numbers tomorrow the US 500 has moved up to some interesting levels on the 4 hour chart, which may prove useful on potential volatility around the data announcement tomorrow.

We can see how from the October lows price action had posted a decent positive trend, white line. Buoyed by optimism that the Federal Reserve would slow, stop and potentially reverse the sharp rate hikes earlier in 2023 that first anticipated.

This optimism took a hit in December however as the CPI numbers, while lower, were not coming back at a pace that allowed this optimism to continue unabated. Through December price action settled into a relatively tight trading range as discussions over the possible Fed pivot continued.

In the past few hours price has been able to move above key resistance areas, blue line. This suggest that again buyers are again hopeful of lower inflation numbers.

So if the CPI number tomorrow can come in close to expectations around 6.5% this buying interest could gain confidence, with the Q4 highs re-opened as upside targets.

This is the bullish case, the concern is that a number of analysts on Wall Street feel that this optimism has been overdone, with the likes of Morgan Stanley even suggesting that 3,000 on the index as a more reasonable level for the index.

Falls back to the Autumn lows do still appear as a distinct possibility if the late Q4 rally continues to lose momentum, which could start to occur if the CPI print is closer to 7%.

Setting up a possible volatile few days ahead, can the optimism currently priced continue higher or will the US 500 follow the US Tech 100 and trade back towards the Q4 lows? We will have a clearer picture on that from tomorrow.