A Pleasant Surprise in Inflation Data
The much-anticipated inflation figures (CPI) turned out to be softer than expected, causing quite a stir in the financial realm.
Behold the US Treasury 10-year yield chart, which coincides with the release of the surprising CPI report.
In isolation, the CPI graph is presented below:
Comparatively, here’s the chart for S&P 500 futures during the same period.
It appears that the sequence of events unfolded as follows:
Unexpectedly soft CPI report ➡ US Treasury’s surge ➡ S&P 500 surges
A Celebrated S&P 500
By taking a step back and examining the daily S&P 500 chart, an intriguing narrative unfolds.
Last week, the discussion centered around a probable “bullish path” for the S&P 500 over the near term.
Bullish Path = A continuation higher from here where the S&P 500 not only breaks the trendline but then retests the trendline thus allowing it to become support and then marching higher from there to take out the next “overhead gap”.
Contrarily, to sustain this bullish momentum, it must dip and fill the gap it recently created, rebound from the downward trendline, and then forge ahead.
Observing the RSI
Note that the RSI is on the brink of “overbought” territory. A subsequent drop to address the gap and rebound from the trend line might mitigate some of the overbought conditions, paving the way for a surge to close the overhead gap.
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If this narrative falters, it would likely coincide with the S&P 500 trading beneath the downward trendline on the chart, possibly leading to a descent through the various open gaps below.
The US Treasury Dynamics
On October 30th, a compelling remark was made about the potential for an upswing in the US Treasury ETFs that were being monitored.
Here is the weekly chart for ZROZ.
Since the publication of the October 30th article, ZROZ has garnered a return of 11.36%.
If this ultimately evolves into an inverse Head & Shoulders, ZROZ could potentially reach a target in the vicinity of 136.97 over the medium to long term.
If inflation continues to dwindle, US Treasuries should persist in ascending, and the US Treasury ETFs under scrutiny have ample room to maneuver.
Summing It Up
The S&P 500 yielded a stellar performance last week, propelled by subdued inflation figures and an upswing in US Treasuries. Nevertheless, the rapid and vigorous rally resulted in the creation of a new gap below current price levels that needs to be addressed. Moreover, it has already reached overbought levels on the RSI indicator.
Be on the lookout for a potential pullback in the next week or so and closely monitor the S&P 500’s response in relation to the downward trendline.
Life is brimming with highs and lows, but let’s spare a moment or two in the coming days to reflect on our blessings and express gratitude for all that we have received.
Until next week…
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