Stocks were mixed again after the CPI report was released, although the big three indices all closed with gains. The CPI report came in a little above estimates and the futures slipped in pre-hours trading initially but bounced back quickly. There was some selling after opening gains, but once again the dip buyers jumped in. It wasn't all bullish as the small caps (Russell 2000) and the Transports did not have good days, although the S-fund did close with a small gain. Bonds rallied again and the VIX had its lowest close since the COVID crash.
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The CPI (Consumer Price Index) estimates were looking for a gain of 0.4% and it came it at 0.5%, which would generally stimulate inflation fears, but bonds rallied and the yield on the 10-year Treasury fell to a 3-month low, so I'm not sure what the "whisper number" was because inflationary data would normally send yields higher.
We have been seeing some of the more speculative investments falter in recent days and weeks, and that may be signally -- something. Of course bitcoin maybe the biggest of them all after its recent 50% decline from the highs.
We saw Gamestop and AMC, two of the biggest short-squeeze meme plays, take a dive in recent days...
And then there's lumber, above, which was in its own bubble for months but it has come down dramatically since the May highs.
The small caps had been flying high for weeks with the Russell 2000 up about 10% in the last month.
It's not often that you see the Russell down 0.68% on the day, and the S-fund up. It's also not often that a couple of indices are up big, and others are down big, but that's what we've been seeing lately.
Is it all about rotation and playing for the changes in the economy? We have inflation fears yet weak employment data recently. We see economic growth yet bond yields are falling as if the economy is slowing. We see oil rising, typical action when the economy is heating up, yet the economically sensitive Dow Transportation Index has been pulling back for weeks. It's difficult to put our finger on exactly what is happening at the moment.
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The S&P 500 (C-fund) made a new intraday and closing high on Thursday. The action was good under the circumstances of the inflationary data, but as you can see in the chart, it hasn't quite broken out yet. Meanwhile support is still rising from below and something is going to have to give today, or Monday.
The DWCPF (S-fund) saw a modest gain despite the larger loss in the Russell 2000 small caps index. It remains in a narrow rising trading channel, and is just below some overhead resistance. Yesterday's low hit that support line and it rebounded so we'll start Friday with the same situation.
The EFA (I-fund) had a good day and moved right back up to the resistance line(s) but since those lines are rising, it's not too much of an obstacle. The question is whether it needs to pull back to retest the 50-day EMA, which is acting as the lower end of this trading channel.
The Dow Transportation Index fell through its support line but the 50-day EMA was there to catch it. We've been watching that 15,200 area as the next line in the sand for this index.
The High Yield Corporate is behaving as you would hope in a bull market, and between this strong credit market indicator and the Fed, it's not surprising that investors don't seem to be concerned. And that may explain the complacent reading in the VIX.
BND (bonds / F-fund) was up yet again despite economic data that would indicate it should have done otherwise, but that's the bond market for you. You never know what bond investors are thinking. They may have sold bonds in March knowing this inflation data was going to be strong in May. Sell the rumor, buy the news? Technically, there's an open gap that is just acting like a magnet right now.