Stocks Poised for Final Spike Low on Oct 13 CPI Report!
10/12/22 Weekly Re-Lay Alert – “The BTESTR Paradox applies to the principle of ‘Buy the Expectation; Sell the Realization’. More succinctly, ‘Buy the Rumor, Sell the News’.
Based on continuing questions I have fielded for 30+ years, that is one of the most consistent challenges in trading – particularly for newer traders. But there are two aspects to this paradox… that could actually be looked at as two distinct paradoxes.
The first one involves its overall application.
Markets trade on expectations.
They are always discounting events (expectations) for the future.
When the stock market has been steadily declining and interest rates steadily advancing into a critical CPI Report (Oct 13), the market has already discounted – or ‘built into’ the current price levels – all but the most bearish scenario.
So, when the report is released, those markets immediately pivot their focus to the next ‘big thing’.
If the highest CPI in history is reported, but it is not anything beyond what was expected, the current price level (stocks/bonds/Dollar, etc.) already reflects that and could paradoxically head the opposite direction (up).
Of course, it often provides a small window of opportunity for the real novice traders – the ‘Johnny-come-latelys’ to wake up, hear the news, and reactively sell stocks… helping to create a bottom. It then (often) takes off to the upside since there is nothing left – that has not already been considered and factored into current price levels – to drive the market any lower… it’s like removing a heavy weight off of a coiled spring… the upside reaction is even more intense.
The second paradox involves cycles and the timing of a corresponding low (in Bonds & Stocks). If the CPI is wildly bearish, higher than anyone’s expectations, those markets would likely plunge for 30 – 60 minutes (maybe a little longer) and then set a bottom at significantly lower levels… a bottom is a strong possibility.
That is how much emphasis is placed on a report like this and it is corroborated by other technical and cyclical factors in Bonds and Stock Indexes (as for the ‘Anti-Dollar Dichotomy’, refer to analysis for cryptos and metals in this Alert.)…
Stock Indices dropped below their mid-June lows, fulfilling the weekly trend and intra-year trend signals of mid-Aug and cycle downturn in mid-Sept. This reinforces the overall outlook for 2022/23 even as weekly cycles could produce a longer-lasting low at any time. The intra-month trends need to turn up to signal a multi-week bottom.
They continue to attack major 3 – 6 and 6 – 12-month support & downside targets at 3560 – 3610/SPX and 10,700 – 11,100/NQ, perpetuating the wide trading range set in early-May – mid-June. They remain in intra-year (and weekly/monthly) downtrends after rebounding into mid-Aug ’22 and retesting year-opening lows – intra-year support turned into resistance – and reversing lower after failing to turn their weekly trends up.
On a near-term basis, stock indexes are fulfilling daily trend patterns & daily 21 MACs, two indicators (along with the intra-month trends) that failed to turn positive during the early-month rallies (first 3 – 4 trading days of the new month) to monthly resistance – where initial peaks were set.
Some of these indexes, including the DJIA, spiked up to their weekly LHR levels – the extreme upside targets for last week – and quickly reversed lower without turning their daily trends up or being able to close above their daily 21 Low MACs. Those factors ushered in the potential for a quick sell-off, which was seen at the end of last week.
In addition, the DJTA, Russell 2000 & S+P Midcap 400 had just turned their daily trends up – a signal that usually times an initial high (Oct 5/6) and spurs a 1 – 3 day reactive sell-off. All those factors were colliding on Oct 6, leading to the warning of Oct 7 being a dangerous day for stocks.
The ensuing sell-off has seen those indexes twice neutralize their daily uptrends but not (yet) turn them down. Combined with the other indexes retesting their lows – and all but the NQ-100 remaining in neutral intra-month trends (not closing below their Oct 3 lows) – the stage is set for a potential reversal higher tomorrow, with or without an accompanying spike low.
Stock Indexes still need daily closes above 30,455/ DJIA, 3820/ESZ & 11,711/NQZ to turn the intra-month trends up (and the daily trends in some indexes) and produce the first signs of anything more than 3 – 5 day bottoms.
Those daily closes would also have stock indexes closing above their declining daily 21 High MACs for the first time since Aug 19 – when they completed their ~4-week buy signals and 1 – 2 month uptrends and set multi-month peaks.
That is what is needed to turn the intermediate trend positive and signal that a 1 – 2 month low is likely intact.”
Stock indexes sold off into the recurrence of an uncanny ~15-Week Cycle that projects a 1 – 2 month bottom by/on Sept 30, reinforced by several indexes dropping to new 2022 lows. More importantly, they have fulfilled 9 – 12 month downside wave structures and project a higher-magnitude rally in the coming month(s). A bottoming phase should now begin to unfold… and could lead to a 15 – 20% DJIA gain in 4Q ’22. A final, potentially violent spike low on the Oct 13 CPI Report could lead to a multi-week or multi-month rally.
On a broader basis, stocks are reinforcing longer-term analysis for a 1 – 2 year peak in early-Jan ’22 followed by a 6 – 12 month plunge in 2022. See related publications for additional analysis.
How Would Late-Sept ’22 Low Reinforce Overall 2022/2023 Outlook?
Why is Higher-Magnitude Rally Expected in 4Q ‘22??
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.