Since the January CPI data was released on February 14 morning, the market participants have talked incessantly about inflation and inflation. The January CPI data was good reflecting a trend of slowing down inflation, but not good enough. The inflation was not low enough to allow the Fed to pause and the employment data continues to be strong. The economy continues to show incredible strength while some market participants continue to disregard the strong econ data and paint a bleak picture, simply because the Fed is in a tightening cycle.
The strength of the labor market and consumer has surprised quite a lot of people and also explained why the stock market is incredibly resilient so far considering how much the Fed has done in tightening the money supply. The strong economy will cause the Fed to elongate the tightening cycle, meaning the stock market will not crash as the bears wished in the near term. Perhaps the eventual real (not anticipated) correction is pushed to late 2023 and early 2024.
The first 10 trading days of 2023 are considered the open range for the first half of 2023. The S&P 500 and NASDAQ have produced a bullish signal for the first half, but the DOW failed to do so. It is a mixed signal as the market lacks clarity in either direction. Sometimes the DOW leads the market, sometimes the NASDAQ leads the market. There hasn’t been a time since the mid October 2022 low that all three indices were acting in unison. The small cap Russell 2000 and semi-conductor are leading the market in the 2023 rally, which in itself is a bullish signal for an early 4-year cycle upturn.
The market entered correction after the February 14 CPI release and will remain in penalty box until the next CPI reading which is March 14.
Technically, it has been 19 weeks since the mid October 2022 low. By March 14 when the next CPI data is released, it will be 22 weeks since the mid October 2022 low, which is in the proper timing band for a weekly cycle bottom.
So between now and March 14, the market will chop around and directionless. We are planning to go long around the CPI data release on March 14 or the following week when the Fed March meeting is held.
We will send out emails when there is a tradable signal, for now we have to wait. It is painful to put money in a market that has no momentum in either direction. Three weeks is a long time to wait for a trade, but that’s what we have do. Patience is a virtue in this business.