Discussion
The set-up into CPI tomorrow is really bullish, IMO. HY CDX is coming in nicely, breadth is good, defensives are weak (with the slight exception of XLU), risk-on sectors are strong, and the Fed is communicating as if it has a soft Core CPI print in hand. And, reassuringly, my read of the market structure is in line with The Kitty, as outlined earlier today. But I’m questioning myself. I was on a Twitter space over lunch today and heard a former bear discuss the outlook for stocks as bullish, and this was a hardcore bear. I don’t like that. Further, this article from Mark Hulbert (key chart below) just came to my attention today discussing the fact short-term market timers are now extraordinarily bullish on stocks. I don’t like that either.
I trust my read of market structure, but I am on high alert for a sell-the-news situation tomorrow on a big spike on soft Core CPI. The key tell will be how the VOL complex reacts. If SPX rips with risk-on sectors leading and VOL and HY CDX down big, then the risk-on squeeze should continue. But if in the mirror image of the October 2022 CPI day that saw SPX bottom at 3490 and reverse green…SPX would rip with VOL bid, setting up an excellent opportunity to sell the rip.