Markets have grinded slowly lower in what is expected behavior before tomorrow’s CPI print, which is sure to cause large volatility in either direction depending on the result. The reading needs to show that the Federal Reserve’s interest rate hikes are having an effect on persistent inflation measures, or it would mean continued hawkish behavior from the Fed. The median forecast is 8.1%. I expect that a report either at or above that number will cause further distribution in stocks, though a surprise below could lead to a bounce.

In any case, there’s really no need to be in the trenches forcing trades in this environment. It’s best to wait for a clearer picture and a low to form. There’s no prize for catching the bottom and it’s really not necessary for making big money. I have made very few trades for the better part of a month. As we remain in a heavily news-driven environment, tomorrow’s CPI reading should largely determine the direction of stocks over the next few weeks. I will be watching the reaction closely.

Tonight I’ll cover updates on the indexes, a few stocks showing RS, and the study of the week featuring a huge winner from 1999. Let’s get into it!

Index Update

All of the index indicators are in the red as the Nasdaq is below the falling 21-exponential moving average, below short-term moving averages, and net highs/lows are down big. This shows internal weakness and signals for caution on any long positions.

The Nasdaq is now comfortably at year-to-date lows, printing a choppy inside-day on below-average volume today. I’m expecting some fireworks in one direction or the other tomorrow. With this index well below all of the declining moving averages, there’s not much to do but wait for a new bottom to form.

The S&P-500 closed just above YTD lows and looks very weak here. It needs to retake the resistance area in orange quickly or it could lead to much lower prices.

Stock Updates

No updates from last issue.

Best Setups

The setups below are ideas, not outright buys; placing a trade is discretionary and depends on both the price action and volume. To succeed, you’ll need to make the trade your own based on your rules for entering and taking profits, and always use a stop-loss!

Regeneron Pharmaceuticals (REGN) is just below all-time highs after printing new highs in relative strength for the past several weeks. It’s forming a nice pivot point at $749, through which volume should be high. Earnings out 11/3.

International Seaways (INSW) has been in a consolidation base near new highs while the market breaks new lows. That’s serious relative strength; it barely traded below the 21EMA before getting bought up. The pivot is a new high at $36.75.

Study of the Week

Tonight’s study showcases Verisign (VRSN) coming out of the 1999 correction. It was an IPO that consolidated for about 10 months before going on to make a 440% price move out of the base. What’s not pictured in this chart is that it didn’t stop there; after consolidating for another few months, it broke out of the stage 2 base for another 500% move. Here’s the printable chart:

That’s all for tonight! See you back here on Sunday night for an update on our stocks.

Cheers,

Dan Dormody