Recession Out & Inflation In?

FUNDAMENTAL ANALYSIS
I have spent so much time over the past month trying to convince the world that the US market is far from going into a recession and today's PPI numbers proved that the balance of fear is swinging gradually from recession fears to inflation fears. PPI, the Producer Price Index, posted the BIGGEST gain since 1973! The last time PPI was this high, the market went into a 2 years bear market! Very simply, Producer Price Index or what is commonly known as the wholesale inflation, measures the cost of producing goods, which is inflation experienced by producers. The PPI is an important number but not as important as the CPI number that comes next. Producers do not adjust prices monthly, passing on inflation to the consumers. Most producers "bite the bullet" and ride out wholesale inflation without raising prices in order to maintain competitiveness. The CPI or Consumer Price Index is due tomorrow (see stock market calendar) and would definitely rock the market. Obviously we are going to see slightly higher numbers with the series of rate cuts over the past months and Uncle Ben will see for the first time the consequence of giving short term pots to the market and losing sight of what he is really supposed to do.

TECHNICAL ANALYSIS
Another sideways, high volatility day in the Dow. What usually follows a series of such movements is one big committed move to either upside or downside and so far, pessimism still seems to be the name of the game and the balance still weighs to downside as the Dow trades comfortably within its linear regression channel pointing downwards. Interestingly, the 30MA is now crossing the 200MA once again, indicating an extremely oversold condition. Most of the time when 30MA crossing 200MA from the top, the Dow makes a rally... at least a short one. If this works out this time, it could help the Dow break above its regression channel and establish a new trend.


Dow Technical Chart By Best Charting Software TC2007!