Painted Bodies, Viking Horns and the S&P 500

Because it’s a human construct, the stock market is prone to the same kind of wild emotional swings that make human behavior unpredictable at times. Yesterday’s action is a fantastic example of this…

As I finished yesterday’s message, pre-market futures were flying higher, up around 3% across the board. Sure, the CPI was good news, there's no doubt about that, but sheesh. Investors were acting like a bunch of college freshmen at their first homecoming football game – bodies painted, hats with Viking horns, yelling and flexing at every TV camera that pointed their way…

The S&P 500 opened trading at 4,069 – firmly above the 200-day moving average – and within 20 minutes, it was challenging recent highs at 4,100.

Again, yesterday’s CPI number was very good news. It suggests that companies aren’t passing every penny of their higher costs on to the consumer, and it also suggests that inflation is cooling a bit more quickly than economists thought. But should that be enough to signal a new uptrend the day before a Fed announcement?

That’s probably asking too much. And cooler heads prevailed. The S&P 500 reversed at 4,100 and dropped below the 200-day moving average. It didn’t dip into the red as the Dow Industrials did. But the message was clear: wash off the body paint and take off those stupid hats.

And by the end, we ended up with moderate gains, perfectly aligned with the news we got. It was a good day, just not that good.

Some people will look at a day like that and get nervous. After all, stocks did reverse big gains, and the S&P 500 failed at its 200-day MA. I would caution against bearish actions based on yesterday’s trading. Think of that explosive move higher as a probe. Buyers are waiting to pounce above the 200-day MA. And the bulls did not simply abandon the market and leave it to the bears.

So I think we will likely see a sustained move above the 200-day MA (which currently sits at 4,033) sometime soon. That is if the Fed sticks to the script. And the entire belief that Chair Powell will stick to the script when he announces the Fed’s latest interest rate move later today.

One other thing of note: Meta (NASDAQ: META). Meta held on to the lion’s share of its gains yesterday. This is a very positive sign for the stock. The stock closed yesterday in the middle of the range between its 50-day MA (which sits at $116.44) and its breakout point at $125.

That’s your “Morning in the Markets” for today.

Take care, and I’ll talk to you tomorrow.