This morning we got the CPI report with month-over-month CPI rising 0.6%, in line with expectations. However, the annual rate came in a 3.8%, more than the expected 3.7%. This sent markets lower in the morning. Tomorrow we will get PPI which will be another read on inflation, but on the consumer side. The Russell 2000 was the weakest performing index today which is to be expected on a hotter inflation report as yields rise which effects small caps the most. It was down over 2% this morning, but markets did recover. The Russell ended up closing down 0.97%, well off of those lows. The Nasdaq lost 0.71%, also recovering a lot of its losses. Meanwhile the S&P closed relatively flat with a loss of 0.16% as it recovered nearly all of its losses. The VIX was relatively weak all morning, even at the lows of the day for markets, and the VIX ended pup closing down 2.12% at $17.99.
The Nasdaq opened below yesterday's primary daily uptrend support and closed below it, starting a new uptrend. As I mentioned in yesterday's update, this was the likely scenario as it would continuously be less and less likely to gap up every day and open above these new downtrends. The lower open today is what led to this technical pullback in markets.
For tomorrow, the only support to watch for the Nasdaq is going to be from its new primary uptrend (white) at about 25,850 which it finished well above today at 26,088. As long as there's no big gap down tomorrow, this 25,850 area will act as support on a pullback. The first resistance on a continuation of the rally will be from its prior uptrend (yellow) at about 26,500 and then its primary uptrend (white) will be resistance at about 26,580. If it breaks through this primary uptrend then the last resistance likely to be in play for tomorrow would be its next uptrend (purple) at 26,645.
The S&P, which was the best performing index today, did not break through its primary daily uptrend support so it doesn't start any new trends for tomorrow. The first support to watch tomorrow on a pullback will be from its prior uptrend (yellow) at about 7,367. After that, its primary uptrend (white) will be support at about 7,342. On a continuation of the rally, the only resistance to watch for now is from its primary uptrend (white) and that will be at about 7,490 tomorrow.
Yesterday I bought IWM puts as I was looking for this market pullback, specifically in small caps as the Russell 2000 had the failed weekly breakout that I talked about in my weekend update. This played out perfectly as I entered almost at the exact top and it got down exactly to its primary weekly uptrend support at 2,795-2,800 today as it hit a low of 2,799.69 before the afternoon recovery.
It did break and close below yesterday primary daily uptrend, and now it starts a new sideways daily trend. The first resistance to watch for tomorrow will be from its prior uptrend (orange) at 2,878 and then its new primary trend (white) will be resistance at about 2,888 which is also right around weekly resistance from last week's failed breakout. This is where it got rejected yesterday, and it will continue to be resistance for now. If it can clear through it this time, there will be more daily resistance at 2,905 (blue) and 2,915 (yellow). After that, its primary weekly uptrend will be resistance at 2,920-2,925.
On a pullback, the only daily support likely to be in play for tomorrow will be its new sideways trend at 2,799-2,800. That is essentially today's low as well as its primary weekly uptrend support.
