Market Reacts Badly, Falls On Inflation Report

9/13

Market Reacts Badly, Falls On Inflation Report

An ominous stock market session kicked off an hour before the opening bell with the release of the U.S. Consumer Price Index (CPI) report.

The median forecast for the CPI inflation report (year-over-year) was 8.0%. The data came out hotter than expected at 8.3% for August, yet a slight decrease from the previous month of 8.5%.

Even though the report indicates an improvement month-over-month, how the market reacts is not always about the improvement as much as the expectations. 

Sam Shames, Vice President of Options at Simpler Trading, pointed out this conflict during  his live trading session.”It is not a direct correlation between bad data and bad market reaction,” Sam explained. “The market will react based on the expectation versus actual numbers.”

The market wasted no time reacting to the news as the report sent the market tumbling in the first hour of trading.

Both the Nasdaq and S&P 500 futures quickly saw previous session gains evaporate. The S&P 500 futures aggressively sold off 125 points before the opening bell – after being up 23 points. The Nasdaq futures followed suit, falling 470 points during that same span.

The stock market was right at key moving averages as the opening bell rang, sitting on both the 50-day simple moving average (SMA) and 15-day SMA. The gap down left the market trading back below the 21-day exponential moving average (EMA), a significant level for bearish sentiment. 

When the opening bell sounded, retail traders had a chance to take advantage of the gap down toward  4,000 on the S&P 500. Once the market dropped to 4,000, there were hours of chop and consolidation as the downside pressure collapsed into exhaustion.

The 4,000 point on the S&P 500 futures is another critical psychological level that traders should consider when creating a game plan. This level can also be used as the line in the sand when trying to gauge market sentiment.

Creating a game plan moving forward

As this market sorts through the volatility, significant levels on each side of the market will be moving averages, psychological levels, and point of control (POC).

To the upside is where Simpler’s traders will be watching the moving averages. Key points for the 15-day and 50-day SMA are at 4,040 on S&P 500 futures (/ES), and the 21-day EMA above 4,057. Another level to keep tabs on is the psychological level of 4,000.

On the downside, the two primary targets in play are the POC, which sits at 3,930, and the psychological level of 3,900. 

Selling holds strong to end the day

For the last hour and a half of the market cash session, the selling volume picked up, sending the market further lower. The bearish sentiment holding until proven otherwise. Signs of this pressure continuing are in place. 

An upcoming event or new catalyst would be the best chance to change the sentiment to the upside, or even push the market lower.

The next economic report comes out Wednesday at 8:30 a.m. Eastern with the release of the U.S. Producer Price Index (PPI). This sell-off could continue as this report can further validate the inflation issues. If the PPI can indicate improvement in inflation seen by producers that could eventually trickle down to the consumer. But at this point it appears to be an uphill battle.

At the close, both the Nasdaq and the S&P 500 futures were heavily negative. The S&P 500 futures closed down 4.27%, losing 176 points, while the Nasdaq futures closed down 5.48%, a loss of 702 points. The Dow was down 1,269 points, losing 3.92%.

Today marks the worst day in the stock market since June 11, 2020, across the three major indices.