'They Are Going To Buy This Dip': What's Next For The Markets After Inline CPI, With Q4 Earnings Looming?

The entire investment world was on pins and needles Thursday morning waiting for the release of the December Consumer Price Index reading at 8:30 a.m. EST.

If you were listening to Thursday’s PreMarket Prep show, you had the luxury of hearing meaningful insight into the furious price action that quickly followed.

The Setup: There is no doubt the Street was leaning “long” into the report. This is evidenced by the price action since Friday’s favorable interpretation of the December jobs report.

From last Thursday’s closing price in the S&P 500 index futures (3,829) to Wednesday’s closing price (3,990), the index has added 161 handles or 4.2%.

Inline CPI Report: While the bears were banking on an higher reading than projections, the bulls were looking for a number that came under expectations.

And what did the release reveal? An inline reading, with both some positive and negative implications included.

You Go First: As so commonplace during market-moving announcements, liquidity dries up in the stock index futures market, along with the S&P 500 ETF SPY and related equities.

As a result, the index had knee jerk reaction higher and then tanked. With markets in a recent uptrend, the onus was on the bulls to defend the markets.

Minutes after the release, with the markets falling into the red, co-host Dennis Dick rejoined the broadcast with this simple commentary.

“They are going to buy this dip,” he said. 

The coverage of the release of the December Consumer Price Index from Thursday's show can be found here:

Choppy, But Good Price Action: With over two hours remaining in the session, the bulls are winning the seesaw battle. The bears did make two solid attempts to bust the market, but were thwarted in both the premarket and off the opening bell as well.

If the index can close above 4,000, it will be the first time since Dec. 14, which was the day following the better-than-expected November reading.

Unfortunately, that level did not hold, as the Fed reiterated its “hawkish” tone in the days following the report.

The Markets Moving Forward: While the Fed has not indicated in any way that it is backing down from its hawkish stance, it does appears the relentless rate hikes are having the desired effect.

Fourth-quarter earnings season and/or first-quarter guidance could still derail the recent robust rally. In fact, investors will only have to wait until Friday morning, when earnings season officially kicks off with the announcement of JPMorgan Chase & Co JPM's fourth-quarter results. 

With the inflation picture appearing to be softening, the last leg the bears have to stand on is a worse-than-expected fourth-quarter earnings season with negative reactions to the upcoming reports.

Technical Take: In the fashion in which the index swooned in the latter half of December, there is limited daily resistance on the upside. In fact, the next daily high that can found in the futures index is its Dec. 15 high (4,043), which is not too far away.

The next two daily highs are spaced apart from each other: Dec. 14 (4,090.75) and Dec. 13 (4,180).

On the downside, a breach of the current low for the session (3,954) may indicate further downside if fourth-quarter earnings reports miss their mark.

Photo via Pixabay.