Stock Market Heads Higher Despite Econ Data

The market knows what it knows.

This may sound a little cryptic, but the stock market is moving no matter what the latest economic data shows.

Traders need to understand how the market is poised to move the next few weeks, and what comes after that.

Latest economic data downer doesn’t stop market

The stock market is setting up for the next several weeks, and the latest economic data didn’t upset the flow.

After U.S. Consumer Price Index (CPI) data came in slightly higher than expected yesterday,  U.S. retail sales numbers spiked by 3% in January, according to the latest report. Consumer spending makes up the majority of all economic activity in the U.S.

Consumer prices continue to rise and inflation – ticking higher by .5% monthly – isn’t going anywhere.

All this economic data led to another mixed day of trading on Wall Street before the three major indexes all tallied positive gains.

In the market today, the Dow closed at 34,128.05 points to rise above flat by .11% (adding just 38.78 points on the day). The Nasdaq notched higher to 12,070.59 points for a .92% boost while the S&P 500 rallied to rise .28% to 4,147.60 points.

Despite the latest economic numbers the stock market is pushing higher.

“The market at this point is in an uptrend,” said John Carter, Founder of Simpler Trading.

He pointed to technical analysis on the daily 5-, 8-, and 21-day exponential moving average on key stock charts. This internal signal is showing the overall market stair-stepping higher – up, then revert to the mean, then higher still.

This choppy, but higher, flow has people questioning why the CPI and retail sales data aren’t pushing the market down. The expectation is that higher inflation numbers would scare the market because the Federal Reserve (Fed) has said it will continue raising federal funds rates to fight inflation.

“When the markets do the opposite of consensus… pay attention,” John said. “What’s right (correct) about the market… is the market.”

Because the market found a way to rally even after the highly anticipated CPI data was released, John sees the market as bullish in the near term.

He is looking for a retest of August highs on the S&P 500, near 4,300 over the next couple of weeks. He anticipates the market will grind higher into early March.

Expect consumer prices to stay elevated

John discounts the idea that as the Fed keeps raising benchmark interest rates that it will soon have to cut rates to help the economy.

“That’s not going to happen,” John said. “As the CPI numbers showed this week, the inflation we have is very persistent. I don’t think that’s going to go away anytime soon.”

He pointed out that hiring is continuing with millions of jobs open, the economy is not faltering, and while mortgage rates are high, they are not horrible. By comparison, mortgage rates in the 1980s – the last time inflation was this high for an extended period – mortgage rates pushed as high as 15%.

John anticipates that consumer prices, particularly staple foods, will likely remain high even if inflation subsides.

“Prices are not going to come back down,” John said.

People may have to deal with inflation settling near 4% as the new normal for a while, John said.

Look outside big tech for steady sectors

With a choppy market that has weakened trader-favorite tickers, like in the technology sector, John isn’t afraid to step out from the consensus of “good” trades.

John is not fond of big tech right now. If this sector moves, it will move without him. He doesn’t expect big tech valuations to increase (after significant losses last year) because technology stocks have reset to deal with an economy dealing with increasingly higher interest rates.

Price action across the stock market is revealing a mixed environment, John said. He noted that certain sectors, such as technology, have been affected by uncertainty in the stock market while other sectors such as agriculture, transportation or healthcare have displayed stock strength.

“Keep in mind that there are other things happening out there besides tech stocks,” John said.

In this choppy mix, John also continues to monitor the U.S. dollar. The dollar is often a “bigger picture” harbinger of market movement.

“If the dollar does spike up again, all stocks will fall,” John said. “That’s what we want to keep an eye on.”

As the market displays more bullish action, John is anticipating the dollar to hold up.

“I am looking for the dollar to kind of quiet down,” John said.

Sticking to short-term trading plan

Market uncertainty has John planning for short-term plays for just a couple of weeks into early March.

He is watching a weekly squeeze on the Nasdaq that could fire long and move higher to the 50% retracement level about 13,500 that lines up with August highs.

He doesn’t see much planning beyond the short term at this point.

“From there the long term in this market is two weeks,” John said.

In the meantime, traders should also be aware of the U.S. Producer Price Index (PPI) on Thursday and then options expiration (OpEx) on Friday.

To get alerts and insights from John and the Simpler Trading team, follow them in our live-trading online community.