Catalysts Push Market To Shift From Green To Red

Early in the week, there was much anticipation of upcoming market events and economic data releases. Between the U.S. Consumer Price Index (CPI) on Tuesday and triple witching on Friday, the market catalysts did not disappoint. 

The week started with indecision across the major indexes with the many catalysts looming. 

Monday led off the week with a green day, but was soon followed by all read ahead. 

CPI numbers kick off hot downside movement

CPI numbers set the downside track in motion as the hot-topic numbers decreased from the previous month, but were higher than expected.

The CPI report caused a massive gap down from the previous close, sending the market below key moving averages. The 50-day and 15-day simple moving averages (SMA) along with the 21-day exponential moving average (EMA) would become notable levels for the remainder of the week.

Game plan targets psychological levels

Psychological levels such as 4,000 on the S&P 500 were highlighted in the Tuesday Simpler Insights article, explaining the importance of having a predetermined trading game plan.

Per the article, “The 4,000 point on the S&P 500 futures is another critical psychological level that traders should consider when creating a game plan. This level can also be used as the line in the sand when trying to gauge market sentiment.”

As long as the market was below 4,000, there could be a continued move to the downside, which ended up playing out. There were then a few targets that could added into the trading plan.

“On the downside, the two primary targets in play are the POC, which sits at 3,930, and the psychological level of 3,900,” according to the assessment.

Bounce higher doesn’t last

The rest of the week followed the plan that Simpler Insights laid out. The market remained below 4,000 and ultimately fell to 3,900 by the end of the week.

Let’s take a look at how we got there:

On Wednesday, the Producer Price Index (PPI) numbers were released, showing that wholesale inflation spiked to 8.7% on an annual basis (down from 9.8% in July), yet is still at a 40-year high.

The report did not make an immediate impact on the market, but validated the concern for future rate hikes by the Federal Reserve. 

The market was able to bounce higher temporarily on Wednesday, closing positive. After such an intense selling day, this cover pop brought the psychological level of 4,000 back into play. 

The Simpler Insights article explained how, on the downside, the psychological target of 3,900 is still a target area on the chart that should be considered in a trading plan.

Market selling continued Thursday after reaching the final target this week of 3,900.

Slow end to the week

The last looming catalyst of the week was triple witching. Triple witching provided the typical choppy and difficult price action to end the week. 

Triple witching is often difficult to trade because it is the day of the expiration of three securities: stock index futures, stock index options, and stock options. 

Fed highlights trader anticipation into next week

A cover pop came at the end of the session Friday as we headed into the weekend after a long week of selling. The last note is that at the close, the S&P 500 futures still remain below 3,900. 

The looming market event next takes place on Wednesday as Federal Reserve Chairman Jerome Powell speaks at 2:30 p.m. Eastern