Psychological Boost

Yesterday was a big psychological boost for the market and a great day for the Bulls with all four fo the major indexes finally above their 50-day averages.  Now comes the important task for the Bulls to hold on to this key support level.  The inflation data in the CPI report this morning could easily serve as the catalyst to inspire the Bulls higher or bring out the bears if the number comes in hotter than expected.

It may be wise to keep an eye on the 10-Treasury for directional clues this morning.  Should the 10-year break above the prior high of 3.033 the markets are likely to view that negatively.  Currently, the market expects the Fed will raise rates by 25 basis points in June with the possibility of two more this year.  A hotter than expected number could easily raise speculation that the Fed will become more aggressive and add a 3^rd increase.  Of course, I’m rooting for the bulls to win the day but I will have a plan to protect profits and capital should the CPI bring out the bears.

On the Calendar

Today at 8:30 AM Eastern we get two potential market-moving reports, but the CPI may well prove to be the most important report of the week.  Consensus expects an April headline monthly gain of 0.3 percent with the core rate gain of only 0.2 percent.  The year-on-year rates are both expected to rise by just one-tenth to 2.5 percent overall and 2.2 percent for the core reading.  Also at 8:30 AM is the weekly Jobless Claims which consensus expects to come in at 220,000 up 9,000 and just above a 49-year low.  Then at 2:00 PM the Treasury Budget according to forecasters will see a surplus of 88.0 billion due to the tax big tax season.

Today marks the last very big day on the Earnings Calendar for this season with 391 companies stepping up to the plate.  However, that does not release us from checking reporting dates on the companies we own or are thinking about buying.  Next weeks calendar show about 500 companies will report.

Action Plan

Today I think it would be wise to keep an eye on the CPI number that comes out an hour before the market opens at 8:30 AM eastern and has the power to determine the short-term market direction.  If the number comes in hotter than expected the 10-year treasury bond could easily rally above 3% which would likely move the market lower.  A pop above 3.033 would technically be a new high and could trigger speculation of an additional rate increase this year.  If the CPI were to come in cooler than expected, then the market may gain some energy to push higher.

Yesterday was a great day for the market with all four of the major indicators above their 50-day averages.  Now the question is, do the bulls have the energy to hold this important level of support?  The answer to that question could be in the CPI report.  As I write this Futures are suggesting a flat open, but that could easily change based on the large number of earnings this morning and how the inflation data is received.   Plan your day accordingly.

Trade Wisely,

Doug