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Weekly Catalyst: Core CPI Inflation Possibly Start to Cool Down. Fed FOMC Rate Hike is Also the Key

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Hello traders and investors!


1. Fed SOMA balance and market summary

https://www.moneypigtrading.com/fed-soma-balance


If the inflation data shows signs of slowing down, Powell said two weeks ago that slowing down the rate hike makes sense here. However, ISM, PMI, and October factory orders were higher than expected, suggesting inflation is still stubborn. However, the jobless claims are higher than expected, suggesting the labor market is slowing down. The key to watch here is the CPI number. If the CPI number softens, meaning inflation cools down, Fed could slow down the rate hike and boost the stock price.


The upcoming CPI number will be tricky as last Friday's PPI number was higher than expected, with energy and commodity prices higher YoY. Therefore, producers have to pay higher material costs. Similarly, we should see this upcoming CPI haunted by the higher YoY energy and food prices. However, we do know a lot of core CPI components have started to drop:



the used car index and airfares have been dropping significantly


the rent and other housing costs have started to fall.



Therefore, the CPI numbers could be similar to the expectation, but we see a larger than 50% chance the core CPI could be lower than expected.


Moreover, Moneypig Trading expects the CPI reported in Jan 2023 and Feb 2023 to see a significant YoY growth slowdown, which could fuel the market upside.


The market is expecting a 50 bps rate hike in the Wednesday FOMC. Powell's guidance on the ongoing rate hike will be the key market driver.





2. Some important events this week:




3. Individual Charts to watch


3.a. $SPY



Downside: 390.51, 385.43, 380.07, 375.05, 369.27

Upside: 395.25 breaks, room to 396.93, 397.2, 400, 401.03, 404.18, 406.98, 410.04, 412.08


Comment:

$SPY probably won’t move much on Monday, Dec 12, as the market is waiting for the CPI number on Tuesday and the FOMC interest rate decision on Wednesday. We expect these two events to move $SPY +/- 6~7% in extreme cases, ranging from 420~366.


We have noticed a lot of tax loss harvesting (What is Tax-Loss Harvesting and Wash Sale in the US stock market? https://youtu.be/OEDlwkrZ-rE) happened last week where $SPY kept dropping during the market hours, where the future market mainly remained flat.


We must watch if the tax loss harvesting will continue to drive down the market during market hours. Also, don't forget Dec 16 is quad witching, which could make the market very volatile especially on Friday Dec 16.


Possible Action (no action yet):



3.b. $BA



Downside: 176.27, 173.19, 172.31, 169.78

Upside: 184.03 breaks, room to 189.04, 192.06


Comment: Bull flagging. United Airlines and the India deals might be announced this week. If confirmed, we could see further upside on $BA. However, Boeing was affected by the tax loss harvesting last week, making the stock price choppy on every pop.


Possible Action (no action yet): $BA weekly 185c long if 184 holds on the hourly chart




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