Tech-driven rally marches on as investors await CPI

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Alex Partida

Jan 11th 2023  .  4 min read

Tech-driven rally marches on as investors await CPI

The S&P 500 futures rose slightly throughout the night and during the pre-market session, causing them to be well above important levels. As a result, both the 50-day simple moving average and the 21-day exponential moving average are now far from the current market price.

Spotting Market Patterns: Understanding Moving Averages

Identifying trends in the stock market can be done by observing the relationship between key moving averages. Some important averages to keep an eye on include the 21-day EMA, the 15-day SMA, the 50-day SMA, and the 200-day SMA. 

The current values for these averages are: 

21-day EMA: 3,906 

15-day SMA: 3,878 

50-day SMA: 3,923 

200-day SMA: 3,993 

These values can change frequently, but as of the release of the U.S. Consumer Price Index (CPI) report, these are their current positions.

Stock market trends can often be identified by observing the relationship between key moving averages, such as the 21-day EMA, the 15-day SMA, the 50-day SMA, and the 200-day SMA. These averages act like magnets, pulling the market price towards them.

A trader can use these levels to create a plan for where the market may go. In this case, after the market price clears the 50-day SMA, the next target would be the 200-day SMA at 3,993. Although the market closed slightly below this level, the S&P 500 futures price gradually moved towards it, falling just 3 points short.

Early Rotation in the Market Paves the Way for a Strong Finish

When the market opened, it became evident that the upward trend was still ongoing. During the early trading hours, there was a significant movement across different stock indices. However, by the middle of the trading session, the various indices were working together and driving the market higher.

Technology stocks have primarily driven today’s rally in the stock market. For the rally to continue, it’s essential to keep a close eye on the technology sector. If the rally lost momentum, it would likely be visible in the Nasdaq index first. While a significant drop could occur following the release of Consumer Price Index (CPI) data, it’s important to also watch for key moving averages to hold steady and for the technology sector to continue leading the market. At the market close, there was still a 100-point gap to the mean. This means that even if a drop does happen, it does not necessarily mean the end of the current bullish rally.

When assessing the potential continuation of a trend in the stock market, one key level to watch is 3,900. If the market is trading above 3,900, there is potential for further upside, even if there is a temporary drop. However, if the market falls below 3,900 and cannot regain that level, it may indicate that the trend is in trouble.

CPI: boom or bust?

When new Consumer Price Index (CPI) data is released, it can significantly impact the stock market, either pushing it up or pulling it down. The forecast for this upcoming report, which will be released tomorrow at 8:30 am Eastern time, is for a 6.5% increase in the year-over-year CPI (median forecast), which is lower than the previous report of 7.1%, and a 5.7% increase in the year-over-year Core CPI, also lower than the previous 6.0%. 

If the actual data is lower than the forecast, the market is likely to rally. If the data comes in higher than expected, it could cause the market to drop. In cases where the actual data is in line with the forecast, there may be a slight reaction as investors and traders digest the numbers.

Nasdaq Finishes on a High Note

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 closed up 1.29%, gaining 50 points, while the Nasdaq closed up 1.71%, an increase of 183 points. The Dow Jones followed, closing up 0.73%, adding 245 points.