Overbought Market Fueled by Economic News
Economic data released this week has been largely positive. Headline Consumer Price Index (CPI) aligned with expectations, while Core CPI came in slightly softer. A notable concern was the rise in goods inflation, which, without the decline in auto prices, would have shown a significant surge in June.
Future inflation data, particularly next month's readings, will be crucial in determining any material impact from tariffs. Producer Price Index (PPI) figures also came in softer than expected, with economists universally missing the mark. While health services inflation remains sticky, a significant decline in airfare within the PPI components contributed to the overall softer report.
The July Philadelphia FED data provided a positive signal, with the Manufacturing Index surging to +15.9 (versus -1.0 estimated and -4.0 prior) and Employment rising to +10.3 (versus -9.8 prior). This suggests robust manufacturing activity, contradicting recessionary fears.
Furthermore, jobless claims posted another declining week, retreating to 221,000 after being near 250,000 just weeks ago. The earlier spike in jobless claims has fully retraced, confirming that it was primarily due to seasonal factors rather than a fundamental weakening of the labor market.
The S&P 500 $S&P 500(.SPX)$ continued its upward trajectory this week, pushing to another new all-time high and entering the $6,299 - $6,326 zone I identified last week as a potential bullish destination.
The price action demonstrated a the bullish character of the stock market nowadays: dips remained shallow and were bought at the precise support areas also forecasted in this publication, my designated support level of $6,210 proved to be a solid floor, as the actual low for the week was $6,201.
Similarly, the resistance zone of $6,299 - $6,326 effectively set resistance, with the high of the week reaching $6,315 before closing at $6,296. This past week serves as another powerful testament to the accuracy of the predictive Support and Resistance levels posted every Friday and included in the charts for the weekend’s publications.
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