By: Tom Gentile
on April 19th, 2023
Originally published via our newsletter previously. Subscribe for early access!
1 of 4 Key Economic Reports in, 2 to Go
CPI Came in as Expected – Deemed Good News
The CPI numbers (report) showed it increased 0.1%. This versus expectations of 0.2%.
The assessment from this first economic report for this week is that inflation prices consumers are paying for goods and services are still rising, but at a slower pace for March.
The markets gapped higher and at the time of this writing, but has given much of those gains back, (at the time of this writing).
The investment and trading community is not going to let just one report dictate their actions or at least they shouldn’t.
The PPI is due out tomorrow morning and we will see if the report is deemed as decent as the CPI report today.
Eyes will also be on the initial jobless claims data due out tomorrow.
If the jobless numbers show the labor market cooling a bit and the CPI and PPI numbers are deemed positive or at least NOT destructive this may bring more dollars in to the markets on the buy side.
Even though the CPI shows inflation slowed for March, it/inflation is still stubbornly high. Though the Fed is not out of the woods yet in their battle to control inflation, today’s report gives an indication that things are going in the direction the Fed wants.
— Tom Gentile
C1P: Chief 1-Percenter
Corners of the Market
SPY – SPDR S&P 500
The CPI numbers came out and was deemed decent enough that the equities markets gapped up.
The numbers show prices consumers are paying for goods and services slowed down last month, which is looked at a good sign for the economy and the Fed’s concern about taming inflation.
The concern is inflation is still high and the fed has a lot more work to do to execute a soft landing at least. This crushed the bullish feel-good vibes from the open and the gains were short lived as the markets reversed course and closed lower on the day.
We have the PPI and Initial Jobless Claims numbers out tomorrow – let’s see what transpires.
TLT – iShares 20+ Year Treasury Bond ETF
Let’s continue to talk inverse trading relationships.
Bonds and equities trade inverse to each other enough for us to want to continue to educate everyone to pay attention to this.
If you looked at this chart during the day while the SPY was trading up 250+ points you would see this chart on TLT showing a very large ranged red candle body, indicating TLT was trading much lower today.
That is proven by the vertical line on the bottom of the candle body shown in the chart.
That vertical line indicates the low of the day and the fact it is a line and not part of a candle body means TLT was bought up off the lows and created a very small candle body. Carry through or a resumed dropped will be dependent on investors reaction to the economic reports coming tomorrow morning.
UUP – Invesco DB US Dollar Index Bullish Fund
UUP is sitting at a very minor support ($27.60).
The last three trading days, in our view, are doji days.
A Doji is a day of trade where the closing and opening price on the day is the same (or pretty darn close to being the same).
What that means is there was no clear winner between bulls or bears – the markets aren’t indicating bullish or bearish sentiment.
We don’t trade the UUP now options on it due to lack of robustness in the actual security’s price move, but we use it to gauge directional sentiment.
The way things tend to trade is if equities go up, the dollar is likely moving down (and vice versa).
USO – United States Oil Fund, LP
GLD – SPDR Gold Shares
6-trading days ago was a strong, bullish day that closed above the recent pivot high indicating a breakout happened on GLD.
If it was a false candle breakout it would have closed lower than that day in the next day, two or three.
It has not happened. Where that would make one think GLD is moving instead in a bullish fashion, that too has yet to happen.
The past handful of trading days are pretty much Doji-type days which again, is an indication neither the bulls nor bears are taking control since that breakout day.
Once again, the point is we need to see what the markets reaction to the remaining economic reports due this week is.
Tools and Observations
There are a multitude of scanners available in the tools.
One that is intriguing to many of my students / subscribers is the Japanese Candlestick Pattern Scanners.
Many people have candlestick charts on their screens, but not many people actually look to trade based on any Japanese Candlestick Patters, bullish or bearish or continuation or reversal.
To find the Rankers (scans) go to Charts > Stock Rankers > and you can select either Candlestick Doji’s or Candlestick Stars
Here is a view of the top part of the page for Candlestick Doji’s
The Wizards portion, highlighted by the yellow/gold box that we put in to the image shows 1- and 2-day Japanese Candle Patterns the tools can scan for.
The only real pattern we search for is the Engulfing patterns. The others aren’t even really our favorites. We mostly use the Candlestick Stars Scans.
To find those go to the Rankers (scans) by going to Charts > Stock Rankers > Candlestick Stars
Here is a view of the top part of the page for Candlestick Stars
We like all these patterns. There isn’t one we don’t like.
The three-day patterns are usually more significant and those are the Morning Start, Morning Doji Star, the Evening Star and Evening Doji Star.
Market psychology says the pattern may have more relevance because these reversal patterns play out over three days vs 2 or 1 and therefor may speak more to trader conviction for the security it happens on because of that.
Mind you, three-day reversal patterns are much rarer, and you will not see securities show up on these scans that often.
All other patterns on here are two-day patterns and they happen more frequently. If pressed to answer which one is more frequent we would have to say the Kicker Pattern, (bull or bear). It is a gap pattern and those tend to happen a lot.
Here is a list result of the scan run on the 2-day Bullish Patterns (Kicker and Piercing Line).
The search was run on the SP500.
The box above the list shows 21 stocks of the SP500 had a 2-day bullish pattern.
This shows an example of how one can use the power of these scans to cut down on the number of securities to have to research and get to only those with a pattern you want to see, dramatically cutting down the amount of research time one has to spend looking for opportunities.
The one in the list we are highlighting is Tapestry, Inc. (NYSE: TPR).
Where a candlestick pattern happens is just as important as the pattern itself, so we want to see bullish reversal patterns off a support and if it is not it isn’t valid and that is why we did not show the top one, HON.
It is encouraged to use Japanese Candle Patterns with Western Technicals and in the chart above you can see we have the 10/30 SMA (Simple Moving Averages) on the chart.
They haven’t formed a bullish cross yet but look like they are closing in on doing so.
One other western technical we can look at is Fibonacci and here is that chart showing TPR is coming off the 38.2% fib retracement (support in this case) level.
— Tom Gentile
C1P: Chief 1-Percenter
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