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Can This Rally Survive July’s CPI Data? And How to Play RIVN Earnings

by | Aug 8, 2022

Wall Street look ahead, Aug. 8, 2022: Trying to make sense of bear market rallies is like trying to explain U.S. foreign policy to a fourth grader — and I’ve been struggling to do both! At a certain point, you just throw your hands up in the air and scream… “Because that’s just how it works!”

I’m still in the camp that sees recent price action as nothing more than a bear market rally in 2022, not a regime change back to a bullish tape.

This week, we’ll shift back from a focus on jobs and earnings to the dreaded inflation gauge, the Consumer Price Index. Last week, there was a lot of thrashing around and markets ended up mostly unchanged with the S&P 500 up just 0.64%. 

Underneath the surface, the action was anything but… 

We saw the apes return to AMC Entertainment Holdings Inc. (NYSE: AMC) and GameStop Corp. (NYSE: GME), huge takes in semiconductor stocks on the back of the pork-filled “inflation reduction” bill, and more selling in oil.

After a massive bullish move in July, it’s normal for the market to digest those gains and consolidate sideways for a while. But at some point, the sellers will come back as they sense the rally is exhausted. I see a few potential catalysts as you’ll read below in this week’s Wall Street look ahead…

Wall Street Look Ahead: The Week’s Economic Numbers That Matter

Wednesday’s latest CPI data: 8.7% expected — Last month, “experts” expected 8.8% CPI and instead got 9.1%. That massive number shook the markets, but only for a moment! You see, markets took the hot inflation number in stride and made a July bottom the following day on July 14. Since then, the S&P 500 is up 11%.

A stock chart for the S&P 500 (Wall Street Look Ahead)

But here’s why another strong number won’t create a rally…

 We already know energy has cooled off some… but the increasing share of inflation in services (the blue graphic) is a big unknown.

Look for a CPI read of 8.7% or lower to create a last-gasp rally on Wednesday that I’d expect to fade fast. If we see another monster reading above 9%, you should see a dramatic sell-off. 

A chart of the last CPI (Wall Street Look Ahead)

Earnings I’m Watching This Week

Rivian Automotive Inc. (Nasdaq: RIVN) — Thursday

Electric carmaker Rivian missed its last earnings number in a big way, and the stock jumped 17.96% that day anyway! The options market expects volatility, with the implied move at plus or minus 10.05%… 

A Rivian stock chart (Wall Street Look Ahead)

My take is that we’ll see some selling here… 

We saw Lucid lower production targets, and RIVN is still guiding 22,500 for targeted auto production this year. A guide lower and this stock will get executed. I’d target a test at least back down to the 50-day moving average at $30.42.*

Remember to check your inbox on Friday for a recap of the week to see how my Wall Street look ahead played out!

Jeff Zananiri
Joy of the Trade

P.S. Even though many traders’ accounts are down…

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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