February CPI Unchanged

CPI report came out a few minutes ago showing core inflation, ex-food and energy I believe, remained unchanged in February. This allows the Fed to cut interest rates further next week if they deem it necessary. Everything I said about doom-and-gloom a couple of days ago can be tossed out the window. Forget the fact that we’re seeing record prices in oil and gold and the dollar’s weakness against everything (including the Peso I bet!). With CPI unchanged, expect the markets to be expecting their anticipated 75 bp cut.

If the current levels hold, expect the markets to move higher. For how long, I couldn’t say. Frankly, I’d rather ride The Hulk at Universal Studios’ Islands of Adventure. At least on that roller coaster, you know what’s coming when.

Here’s the DJIA chart from yesterday’s close. Notice how we retraced Wednesday’s losses and bumped up against resistance again almost perfectly this time. If we can close above resistance today, coupled with the Fed’s imminent rate cut next week and Visa’s IPO (largest IPO in history I believe at $16b), expect the markets to go higher.

Here’s a chart of the Dow Futures, known as the YMs. This chart is of the June futures contracts so volume’s a bit light since the rollover from March to June just occurred yesterday. Notice anything? Although volume’s lacking on the first half of the chart since these are the June contracts (the March contracts show the same graph with strong volume), doesn’t it look like an inverted head and shoulders with the neckline right around 12,200? So now the question is, was last week’s action the market bottom? Normally, inverted H&S patterns are a reversal signal, right? Then again the markets are so news driven technical patterns have been blown out recently. I still think we’re in need of going lower but for the short time, it looks as if we may be headed higher if this inverted H&S holds and the markets get their beloved rate cuts next week.

Edit: Here’s a graph of the March Dow Futures. The inverted H&S shows up quite a bit better since volume’s a bit heavier.

Jorge 14 March 2008 FOMC, Market Pulse

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Options Strategery 8 months ago 1 point
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CPI numbers were amazingly good and the markets were doing well until Bear collapsed. I am not sure the Fed would cut 75 bps. I think they need to focus on rescuing Bear and others out there. Don't forget that TMA is still on life support.

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Online Traffic Formula 8 months ago 1 point
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Agreed, I would have to give you a thumbs up on your perspective Options. The other post, I'm not sure where your info came from, but as far as this one, it's makes more sense to me.

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Jorge 8 months ago 1 point
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TMA is definitely still on life support. I actually tried holding some naked puts on the 2.5's but it was too risky even for me. I hear their management really isn't that bad. They're just in a position right now.

I was surprised to see such tame CPI numbers but expect them to rise next month for March. There's absolutely no way inflation's remained tame during March (unless you're excluding energy and food).

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