7 Aug 2022 SPX Weekly - Inflation and Recession

Accuracy: 27/32 (84.37%)

SPX below 4300 - Correct

Last Week

SPX pretty much struggled in the current area as I predicted. There's just not enough catalyst to push it higher.

Quite close to 1 of the scenarios I drew last week, SPX finds support at 4080 area which meets a previously area of consolidation. Now we see a pretty strong early uptrend on the rebound with quite a steep uptrend line forming.

Mostly sideways for the entire week. We had a good run up on Wednesday and a big drop on Fridays Nonfarm Payroll and Unemployment rate data release. What's interesting is there's a mixed sentiments on that data. The initial reaction before market open was pretty instantaneous towards the bear side but throughout the market open it consolidated within that range. Another point to note is that this drop kinda goes near the uptrend line to find support.

Next Week

Zoom out a little on the 30 minute chart to have a better view on what could happen next week. On the bearish note, I still see 4000 as a significant area of support as shown in green. Upside wise, 4300 remains the next resistance for next wave up.

Zooming out even further using the daily candle chart will see this much clearer. The 4300 area also meets a downtrend resistance created by the 2 previous lower highs. 3900 and 4000 is formed by the recent waving up dips. On the blue/red regression trendline, we are also at the top of the channel.

Economic Calendar

All eyes on CPI once again. In the previous CPI, despite having a miss in estimates the market rallied because of the sentiments that inflation has peaked. Which makes things very interesting yet confusing with Friday's jobs data that is kind of contradicting to the much anticipated recession. Hence the mixed sentiments around inflation vs recession now.

Inflation and Recession

The thing about inflation is its mainly due to the Feds printing too much money during the pandemic causing everything to go up in price. Together with the war between Russia and Ukraine causing commodity prices to go up and pushing inflation up further. Then the whole notion of estimating that the inflation is peaking is due to commodity prices starting to fall even though the previous CPI hits a new high. That leads to the rally in July.

As for recession, which is a result of Friday's mixed sentiments. Is because we had more jobs than ever, doubled the analyst estimates. In recession, it means we will have fewer jobs but the data is showing otherwise. Means we're not that close to a recession after all. But weirdly, the market initial move is super bearish. This is because there's another perspective that more jobs could mean inflation has yet to subside, which may lead to more hawkish Feds. Hence the bearish perspective on the market.

In short, it's just a whole bunch of anticipation happening with regards to inflation and recession.

Prediction

As the topic gets hotter on inflation and recession, next week's CPI is basically the main activity to move the market. Another flip of coin event but this time I'm slightly bullish as the whole market sentiments seems to be reversing. More good news than bad news slowly surfacing.

So despite if market were to pull back slightly, I will take 4000 as the strong area to hold it.

SPX above 4000