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S&P 500 Talking Points:

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Tomorrow brings the release of CPI data for the month of November and throughout this year, CPI has been a major driver for stocks. Earlier in the year as CPI was climbing, stocks were vulnerable as markets started to price in more and more rate hikes out of the FOMC. This took a toll on equities, with the S&P down at one point by more than 27% this year.

That low in the S&P printed on October 13th, which was another CPI print, with a brutal initial reaction that saw the S&P make a fast run at the 3500 level. As usual CPI data was released at 8:30 AM ET and by the time equity markets opened an hour later, stocks had already begun to rally. And here we are, two months later, and those lows remain unfettered as stocks continued in a bullish trajectory for much of the next month.

The S&P 500 began to re-engage with resistance at the 4k psychological level on November 11th. And now, a month later, that level remains in-play. To be sure there’s been fits and starts of trends along the way but, on net, nothing that’s taken hold yet.

At this point, ahead of CPI and FOMC, the S&P 500’s 2022 price action has been working into one large falling wedge formation.

S&P 500 Weekly Price Chart

CPI has had a massive impact on the S&P 500 over the past two months. As noted above, the reversal on October 13th, which set the yearly low in the index, showed up on the heels of a CPI print. But, there was another major move that took place about a month later, also driven by CPI.

October CPI was released on November 10th and this time, both Core and Headline CPI printed inside of expectations and this led to a strong risk-on move, with the S&P 500 breaking out of a short-term falling wedge formation (resistance as the dashed line below).

The next day, the S&P pushed up to the 4k resistance level and that held for the next couple of weeks, until bulls finally forced a breach of the 200 day moving average, only for resistance to show up at the same 2022 trendline that caught the highs in August.

Each of those past two CPI releases are marked on the below daily chart in green.

S&P 500 Daily Price Chart

Chart prepared by James Stanley; S&P 500 on Tradingview

S&P 500 Short-Term

There’s a stubborn spot of support in the S&P 500 that does not want to give way. It’s the same spot that was resistance earlier in November, just before that falling wedge breakout. This came in as support after the resistance check at 4k, and it held the lows again last week over a three-day-period from Tuesday-Thursday.

S&P 500 Daily Chart

Chart prepared by James Stanley; S&P 500 on Tradingview

S&P Strategy

Going back to the weekly chart, that longer-term falling wedge remains in-place. That’s a bullish reversal formation and if buyers can pose a breach of the upper-trendline, which has held multiple inflections already this year, then the door can quickly open for bullish scenarios.

The bigger question is one of continuation potential. Perhaps there’s motive for strength into the end of the year as longer-term shorts get squeezed and look to clear positions ahead of the 2023 open. But, at that point, equities have been ramped and rates remain high; corporate earnings will likely show the toll in the first half of next year and that’s something that could re-open the door for bears at some point.

Or, perhaps we have a redux of this year, where stocks find their high in the opening week before undergoing a directional change of some type.

But, this is why the support zone around 3915 is so key, because if sellers can force a breach, there’s a stronger case to be made for continued consolidation into the end of the year and that can re-open the door for a re-test of the confluent zone around the 3800 level.

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S&P 500 Weekly Price Chart

Chart prepared by James Stanley; S&P 500 on Tradingview

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