Bulls came out of the gate early Wednesday with purpose, states Jon Markman, editor of Strategic Advantage.
Yet like the previous session, they were overwhelmed by sellers. An early rally faded. The S&P 500 (SPX) closed down 0.2%, to 3,933. It was the fifth consecutive loss for the benchmark index. More importantly, bulls failed to retake the 20-day moving average at 3,961. The oddity is the outlook for inflation is improving almost hourly. Oil prices have tumbled to $72.40, and the yield for the Ten-Year Treasury Bond is now only 3.42%. This is down from 4.22% on November seventh.
Prices for gasoline, heating oil, car loans, and mortgages are plunging. This is bullish for stocks. Bears argue that stock prices are still too high because inflation is hammering corporate profitability. That is a cool story, however, the best investment narrative is one that looks forward.
I expect the markets will rebound ahead of the Producer Price Index and Consumer Price Index reports due next week. In the short term, there is support for the benchmark S&P at 3,830. Resistance is 3,962, then 4,040, the 200-day moving average.
The Trade: The current position is the WisdomTree Bloomberg Floating Rate Treasury ETF (USFR), a cash alternative. I expect to recommend redeploying capital later this week.
