Morning Comment: Will CPI be bullish?......Ethereum is testing important support

If there is one thing that stands out to us about the short-term picture in the marketplace right now is that so many people are looking for a bullish number out of tomorrow’s CPI inflation report. Even the bears are looking for “one more” bounce in the stock market…which will take the S&P up to the 4300-4400 level…before it tops-out and rolls back over……We must admit that this thinking on our part is based merely anecdotal evidence. In other words, we do not have specific sentiment numbers that are showing a very high level of bullishness over the very short-term. (The type of sentiment indicators that tell us where the market is going to go over the next 2-3 days really don’t work well…except when the intermediate-term readings reach major extremes…and those intermediate-term readings are not extreme right now.) Therefore, we are just relying on what we’ve heard and read from many investors and Wall Street pundits over the last week or so.

Therefore, we are NOT saying that we’re seeing clear signs that sentiment is too bullish right on the short-term potential for the stock market. Thus, we are also NOT saying that this means that the market will roll-over in response to tomorrow’s CPI number unless it is very weak. Instead, we’re just trying to point out that based on what we see right now, an “in-line” CPI number might not help the stock market rally much more at all…and that a higher-than-expected number could/should hit the stock market pretty hard…..Put another way, even though the issue of high inflation is the most important one for pretty much all investors right now, the stock market is not setting up (at all) for a “buy the news” reaction to a bad inflation number. In fact, we believe that it’s now set up for just the opposite.

Having said all this, if the CPI number is a weak one, it will very likely help the bounce off the late-May lows experience another leg higher. As we highlighted yesterday morning, the market has been stock in a sideways range for almost two weeks now…and whenever the market breaks-out of a sideways range, it usually sees a pretty big move…in the direction of the break. Thus, if the S&P 500 can break above its 4075-4175 range to the upside, a move up to the above-mentioned 4300-4400 range is not out of the question at all…….However, given that oil prices are flirting with their 2022 highs…and food prices are only going to get higher (once the food that has the high fertilizer prices baked into them comes to market)…we don’t think the markets will price-in a bullish outcome to this inflation/stagflation environment for very long.

Switching gears, we want to highlight that Ethereum stands at an important technical juncture. We all tend to use Bitcoin as the bellwether for the cryptocurrencies, but most of us do agree that Ethereum is also a key crypto as well. (Many people believe it will be the more successful one in the years ahead.)

Both Ethereum and Bitcoin have also been trading in tight ranges recently, but Ethereum can also be seen as having formed a “descending triangle” pattern. If it breaks below the bottom line of that pattern (of 1,700), it’s going to be VERY negative…because that line is ALSO where the lows from last June and July of last year come-in. Therefore, any significant break below 1,700 is going to be very negative for Ethereum on a technical basis.

As always, we cannot jump the gun. Until or unless Ethereum breaks below that key level, we cannot say that another serious down leg for this key cryptocurrency is in the offing. However, since we believe that the cryptocurrency market has been keenly affected by the level of liquidity in the system over the past two years…and that liquidity will continue to become less plentiful…we think another decline for this asset class will hit us before too long. If/when Ethereum breaks below 1,700 in a meaningful way, it should be a clear signal that a new “down-leg” has indeed begun.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jun 09, 2022 — 8:06 AM
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