After the Tuesday slow grind higher, the CPI posted a hotter than expected 2.1% year/year increase overall (but 1.8% core) and retail sales flipped negative (-0.3% versus +0.2% expected), hammering futures. From +13 on SP to -25+, DJ showing -250+, NASDAQ -75+. The recovery, the relief bounce, was proclaimed dead. Even the guy on the CNBC morning show said that volatility had returned and the market was heading lower again to test the prior lows. Get that buy list ready was the advice.
You better had already been ready to buy. We said that a dive lower here to the prior lows was not a reliable bottom, that this bounce really needed to continue. Watch how the bids return off a weaker open was the admonition.
NFLX opened positive as did TGT, others as well. Stocks all rallied from the open. A classic 'sky is falling' pre-market to a surge left to right, low to high, posting impressive scores. Growth led, always a good indication.
SP500 35.69, 1.34%
NASDAQ 130.1, 1.86%
DJ30 243.04, 1.03%
SP400 1.87%
RUTX 1.82%
SOX 2.23%
NASDAQ 100 1.85%
VOLUME: NYSE +12%, NASDAQ +21%. Volume back above average on some solid buying. That shows the buyers returning with some force, though relatively lighter than the recent selling volume.
ADVANCE/DECLINE: NYSE 2.2:1; NASDAQ 2.9:1
Predictably and hilariously, the 'world ends sometime soon but we have been making that call for 10 years and have not got it quite right yet' websites and doomsayers were calling the economic numbers stagflation and declared the current rally's demise.
The rally did not die, though it did kick back upside faster than we thought it would. It also showed more strength, with NASDAQ, NASDAQ 100, and SOX blowing up through the 50 day MA's. SP500 and DJ30 are just about to bump those levels.
RUTX and SP400 are still way off the 50 day MA's, but they posted large gains as they caught some strong bids for a change.
Chips were strong as some broken patterns ripped upside, e.g. LRCX, AMAT. They need to get back in the mix and we will see if their patterns can form up better. Retail was setting up as noted and it shot higher. Trucking jumped. Industrial metals took off from good patterns. Biotechs jumped upside. FAANG was solid. Financials started up off their 50 day MA tests.
In a second bit of irony, the morning calls that the rally was over turned to afternoon talk that the Friday low was THE low, that you had better be buying because you now were not going to get another chance.
That may ultimately be the case, though we doubt it. History says another test will come. Moreover, these relief moves can be explosive just as this one. I believe the phrase of art is 'rip your face off' rallies. Thus this is not out of character with the overall bottoming process I have previously outlined. It does show, however, why we play them, because they can really pour it on and make you money. Further, if this DOES beat the odds and turn into a sustained upside rally to new highs and beyond, then you are in and making money versus sitting on your hands wondering what happened.
We are enjoying moves higher in our newer positions on AMZN, NFLX, EPZM, RACE and added FB, CAT, JBHT, TGT, ESPR, SCHN, MSCC Wednesday. There are more good setups out there we are looking at, and we didn't pick up some because volume was somewhat light. You don't want to buy too late into a relief move, but we see more good patterns setting up and if the market decides it has enough good setups to continue rallying, then you buy. Just be aware that historically the move will stall and go back to test the prior low. There is always the chance it plays the improbable and continues rallying from here, and that is why when the stocks show good 'buy me' indications we move in.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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