Stocks closed higher today, finishing off the week on a high note. The Dow, S&P, and Nasdaq Composite all gained again as yields idled. The 10-year Treasury yield closed flat.
Crypto markets saw red again following the FTX bankruptcy, but for stock traders, it was another good afternoon, and it’s all thanks to the October CPI “afterglow.”
“Overall, the report suggests that peak inflation may finally be behind us, though inflation may remain elevated for a while,” said Sonia Meskin, BNY Mellon’s head US macro strategist, in a note Thursday.
Even though inflation could remain stubbornly high, the idea that it may have topped out was good enough to spark rampant buying and short covering. Investors believe a Fed pivot is back on the table as a result.
“From an equity market perspective, as long as the threat of much higher rates is out the way, this should remove a major headwind,” Barclays’ head of European equity strategy Emmanuel Cau wrote.
Rate hike expectations are falling, pushing stocks higher. But traders have found it difficult to pick specific names after the market’s two-day surge.
“It’s so tempting to want to go back to the old leaders, to go back to the top of the market, the techs, the Apples,” said Strategas analyst Chris Verrone.
“I think that would be the mistake here.”
Tech shares are up huge since yesterday morning. Anyone going long now could be partaking in “peak buying,” especially if yields start to climb again.
That’s why it might make sense to evaluate bearish setups on less-correlated market stocks. Raytheon Technologies (NYSE: RTX), for example, plunged today, closing below its bullish trend (yellow trendline) and the 10-day moving average.
RTX also failed to break out past resistance (red line) and the stochastic indicator suggests the stock has plenty of room to fall.
For those reasons, it might make sense to take a bearish trade on RTX with a trade trigger of $91.89, below today’s low, as the general market looks to build on this week’s very strong gains.