On 12/10/21 the US Consumer Price Index (CPI) was released and recorded a 39 – year high. If high inflation continues it’s bearish for the average US consumer, increasing inflation tends to be greater than increasing earnings.
Inflation by itself may not be bearish for stocks, its what happens to yields/rates that have an effect on stocks. This was discussed in the 11/17/21 blog “Rising Short-Term Interest Rates”. Rising rates/yields for short- term US government notes/bonds in the one-to-five-year range can lure money out of stocks and into much safer notes/bonds.
The daily chart of US Five – Year Treasury Note Yields (FVX) courtesy of Trading View illustrates the price action since July 2021.
On the bearish CPI report FVX stayed below its 11/24/21 high and had a small decline going from a close on 12/09/21 of 1.257% to 1.252%.
Daily Stochastics had a crossover that implies yields could continue to decline.
If yields continue lower it could aid the current rally in US stocks.
The 60 – minute S&P 500 (SPX) chart illustrates a bullish pattern.
After the recent rapid SPX rally a bullish “Cup with handle” pattern formed. When prices exceed the high point of this pattern it strongly implies a continuation of the rally. It’s also interesting as to when the upside breakout occurred. It happened in the last trading hour of the week, apparently traders were not concern with “event risk” over the weekend.
Additional bullish evidence comes from the RSI + MA. So far RSI has not reached the overbought zone above 70%. Also, on 12/10/21 RSI – the black line moved above its moving average – the red line. This bullish crossover implies continuation of the rally.
At the SPX high on 12/10/21 it had retraced 87.8% of the 11/22/21 to 12/03/21 decline. The bullish evidence strongly implies the SPX could make a new all-time high as soon as 12/13/21. On 12/15/21 the US Federal Reserve will make its FOMC announcement at 2:00 PM – ET. Their decision could help continue the US stock rally or trigger at least an intermediate multi month decline.