1/10 Daily Market Note: Very Strong Bullish Squeeze Ahead of CPI

Breakout incoming? We'll see tomorrow.

Hey Folks!

A short note today as today’s auction is not yet conclusive before the 10Y Yield gets repriced after CPI tomorrow, which will in turn correct any market excess (euphoria) or keep the euphoria going on from here to even higher highs.

I will have a more thorough read on where the indices go next tomorrow morning as CPI is released. The report comes out at 830am EST. I’ll be sharing thoughts on this in my pre-market WhatsApp group tomorrow. Generally speaking, the market is front running ahead of a softer print tomorrow.

We can see below from my chart work that as markets have bounced late last week into now, Volume has actually been declining. At the same time, my read on Volatility VIX index is that it is now forming a higher-low structure since mid-December. This aligns with my thinking that the journey from 470SPY to 477 now is a squeeze and not organic buying. If organic does come through, we will be seeing all-time highs again shortly.

The VIX is still in Contango as mentioned yesterday but the curve is not steepening ahead of tomorrow meaning that traders still value protection ahead of tomorrow’s macro inflection point.

Volume falls as Price Rises. Hmm.

Other areas that I’ll also be watching tomorrow is the Dollar DXY Index as well as the 10Y Yield. As long as the consensus expectation is met, my current perspective is that the Dollar (DXY) and Rates will keep its current levels with some variance but not a breakthrough.

My base case is that inflation comes in-line with expectations given that energy prices have been quite subdued over the past 30-45 rolling days.

This means that even if there is a rally in 10Y Rates, it should be capped to 4.16-4.2 based on my read of the current technical/macro structure.

Rates and Dollar, even if they rise, don’t have that much upside in my view.

Will continue to monitor the situation and share my thoughts in my Daily Market Notes here.

Last comment is that I believe China makes a recovery later in 2024. But with Taiwan elections coming out this weekend, foreign investors will be awaiting that first. Playing Defense in China for now in taxable accounts. Any new positioning in China will most likely be placed in my 401K Retirement as such an account is designed to not worry about short-term whims.

Good luck with CPI tomorrow!

-Larry