After a higher-than-anticipated CPI report, the major market averages traded much lower. August’s CPI came in increased by 20 basis points.

Fed Futures are now pricing in a 20% chance of a 100-basis point hike and an 80% chance of a 75-basis point hike. Inflation has broadened in society and become more entrenched in the economy, and will remain above 2% for some time.

It can be challenging to keep up with today’s stock market. However, one reliable tool, MarketGauge’s “Modern Family” provides insight into the current macro picture. One of the family members and the strongest now, “Transports” (IYT), helps provide the general assessment of the bond market. Furthermore, junk bonds have been excellent at assessing risk on or off.

It’s important to look at where we are in terms of risk. Are we able to see further gains in the stock market, or is a pullback on the horizon? To answer this question, we need to look at bonds and yields as well.

The chart above shows that junk bonds (JNK) are losing steam and retreating from its 50-day moving average. JNK is rolling over, yields are around 7% and investors are buying less risky debt. Investors are not choosing higher spreads, but less risky bonds.

At this moment, one can take virtually no risk and receive 3.73% in 24 months and only lose inflation cost.

IYT failed the 200-DMA and, until the close, was holding the 50-DMA. Should we confirm the return of the bear phase, we can assume, at this point, that the economy cannot handle these aggressive rate hikes.

What is interesting and, perhaps the best scenario besides JNK bonds holding June lows, is that IYT is outperforming the SPY. Should JNK hold and IYT reclaim their 50-DMAs, perhaps the worst of the shock is behind us. Nevertheless, should neither hold up and sell off further, we will take that as a reliable sell signal.

To learn more about how we invest profitably during these times, please reach out to Rob Quinn, our Chief Strategy Consultant, by clicking here.

Mish’s Upcoming Seminars

ChartCon 2022: October 7-8th, Seattle (FULLY VIRTUAL EVENT). Join me and 16 other elite market experts for live trading rooms, fireside chats, and panel discussions. Learn more here.

The Money Show: Join me and many wonderful speakers at the Money Show in Orlando, beginning October 30th running thru November 1st; spend Halloween with us!

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish joins Business First AM to examine the question “will the market go off-track?”

Mish sat down with Yahoo Finance to talk about headwinds that could stall the rally.

Mish hosted the Monday, September 12 edition of StockCharts TV’s Your Daily Five, where she discusses the most influential aspects to the market, from the dollar, to bonds, to commodities.

In this appearance on Cavuto Coast to Coast, Mish, Jonathan and Neil discuss inflation — somehow, it all comes back to that.

Mish joins Maggie Lake of Real Vision Finance to talk about key levels for stocks, bonds, crypto and the dollar. Mish also shares critical information about hot sectors such as solar and EVs, emerging markets and trends, and the all-important commodity sector.

ETF Summary

S&P 500 (SPY): Unconfirmed return to bear phase 389 1st support with additional support at 382 and resistance at 400 Russell 2000 (IWM): Unconfirmed return to bear phase; 178 support, 186.50 resistance.Dow (DIA): Unconfirmed return to bear phase; 310.90 support (last week low), 315 resistance.Nasdaq (QQQ): Unconfirmed return to bear phase; 292 support, 300 resistance.KRE (Regional Banks): Unconfirmed return to bear phase; 62 support, 63.25 resistance.SMH (Semiconductors): 198 support, 210 resistance.IYT (Transportation): Unconfirmed return to bear phase; 226.80 support, 233.50 resistance.IBB (Biotechnology): Unconfirmed return to bear phase; 120.50 support, 124.10 resistance.XRT (Retail): Unconfirmed return to bear phase; 61.70 support, 64.50 resistance.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education