Market Hits Sell-the-News Setup for CPI

One of the most important things to understand about the stock market is that it doesn’t think like a normal human being. It can be highly irrational and emotional, and will do the exact opposite of what seems prudent and reasonable.

The primary emotion driving market action is fear — either fear of losing money or fear of not earning enough. Fear of not making enough money is also known as "fear of missing out" or FOMO. FOMO is hard at work right now, as market players try to keep up with a market that refuses to rest and does not allow for easier entry points.

On Monday, the indices had mild gains with the S&P 500 moving up 0.15%, while the Nasdaq Composite hit a new all-time high. Breadth was only about 5,800 gainers to 4,100 losers, but there were nearly 400 names at new 12-month highs. Momentum slowed down a bit, but the very strong underlying support is impressive.

This is an interesting setup for the CPI report, which is due on Tuesday. It is a classic sell-the-news technical situation, but all the recent inflation data has been better than expected. It has been so consistently positive that many of the economic bears have given up, but we now have a situation where an inline report may not be good enough.

Regardless of whether CPI is hot or cold, the debate over Fed rate cuts is likely to intensify. The heat on Jerome Powell is building, and if CPI is mild, it will turn up the flame of President Trump’s unhappiness.

Tariffs still appear to be a non-event but that could change very quickly if deals don’t occur and some of the more onerous tariffs go into effect. As I discussed on Monday morning, there is a long list of potentially negative catalysts that could kill this uptrend but for now the indices continue to stay overbought.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.