Transports along with broader Industrials space strengthening

Calm before the storm?   SPX and most major indices seem to have stalled out to the downside ahead of Thursday’s CPI reading which is considered by many to be the most important economic report this week.  Volume was compressed and Defensive groups like Utilities and Real Estate showed extreme underperformance, continuing a recent trend over the past week.  Overall, as has been discussed, technical factors other than price argue that lows are close at hand.  These are largely based on momentum, breadth, sentiment, seasonality, cycles and sector rotation.  However, selling in Technology has kept a lid on strength in Equity indices, and the specific lack of any real rebound makes it difficult to have any conviction that trends are turning higher right away.  Therefore the “proof is in the pudding” so to speak.  Markets are certainly very close to turning up and could very well start this Thursday on a better than expected CPI reading. 

However, one cannot rule out a “final” plunge down to near SPX-3500, but I anticipate any move should prove very short-lived and then reverse to rally back to 3800-50 in short order.  Overall, the risk/reward definitely favors the Bulls between October-December, and while downside might be 80-100 points down, the upside seems to be 200-250 points higher in SPX.  While I’m confident that markets will be higher over the next couple months, it’s important that we all see the proof of a reversal as the next few weeks are still expected to be volatile.

Industrials have begun to turn up sharply in recent days

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