In our last tactical call made to you, we told investors to take a cautionary approach in August. Since then, due to macroeconomic releases such as nonfarm payroll numbers and July inflation data, we would like to make another tactical call.

Last Friday, we got very strong July nonfarm payroll numbers (in fact, the labor market gained jobs), indicating the job's market is incredibly strong despite recession fears mostly attributable to the Federal Reserve's fight against inflation. This notion of a strong labor market opened up a stronger possibility of a soft landing, in which the Fed can bring down inflation with interest rate hikes without crashing the economy. 

Then this morning, we received additional good news from July inflation numbers in the form of Consumer Price Index report. It revealed consumer prices rose 8.5% in July from a year ago, compared to 9.1% in June. Month over month, prices were flat. These numbers indicate that inflation pressures are easing somewhat, not surprisingly given the large declines in commodities such as oil, copper, lumber, plastic .... However, inflation still remain at highest levels since the early 1980s. 

But to the stock market this morning, good news is good news, and pre-market futures are indicating an open near S&P500 $4200 level. This is an important level to watch, because it was the high made in June 2022 before we dived lower to $3600. Now that we're back at $4200, if we can decisively break this level, we can say with high confidence that June's $3600 level was the low of 2022. That is why it is important to watch the stock market's movement today, paying particular attention to whether it can break and close above $4200, or there is a strong rejection and we close lower than open.

In the non-favorable scenario, if we get a rejection and sell-off from here, we think sub-4000 is in the cards for S&P 500. On the other hand, in the favorable scenario, once we clear $4200, the rally can extend for the remainder of August to $4300. This $4300 level is the 200-day Moving Average, which we broke below in April but has not tested. It is reasonable to expect that the market will find strong resistance here. We view that resistance at MA200 will occur in September, which coincides with a seasonally volatile period (this year because of mid-term election uncertainties).