CPI Print in Focus. How Long Can the Rally Last?

Inflation report is going to drive the Fed narrative. 

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Our View

Was yesterday’s rally a front for today’s CPI number? It sure looked like it was! After a small early dip, it was a relentless non-stop buy program. Most days when you see moves like that, you will see a few 10-point pullbacks, but with the exception of the long back-and-fill, it was straight up.

More recently, the MrTopStep Imbalance Meter (MIM) has favored the long side (while yesterday’s $2.95B to buy helped quite a bit). The aggressiveness of putting that much money to work must be tied to something. Today it’s the CPI number and tomorrow is the Fed rate decision.

In all honesty, I don’t know what to expect out of today’s CPI print, but what I do know — good or bad — is the fireworks start today.

Our Lean

I’ll be honest, I can write about the S&P better than I can trade it. This rip has given buy opportunities all the way up and there is no excuse to be shorting because you’re not long. If you are trying to short this, you may get a shot at it today, but I think the markets are in motion and it’s better to just keep buying the dips until it doesn’t work. With the way this is set up, you will see it play out.

Can today be the day to reverse the rally? It could but I think the odds are low. Could we see a larger drop? Sure. The S&P is now up 24% from its bear market lows. It’s unlikely to keep going straight up, but that’s a tough trend to fight in the meantime.

Our Lean: I think if the futures pop up off the CPI number, it may be a short sale. After that my guess is we bounce, but I think the higher the ES goes from here, the risk of a let down grows.

As for levels, keep 4420-25 on your radar on the upside. On the downside, watch last week’s high near 4370, then the prior resistance area around 4350.

MiM and Daily Recap

The ES traded up to 4367 on Globex and traded 4358.25 on Monday’s 9:30 futures open. After the open, the ES dropped down to 4351.75, did a MrTopStep 10 handle rule up to 4361.75 at 9:40 and for the next hour traded in a 5-point range until the futures traded down to a new low at 4351.25 at 9:43. However, it remained in the range until the ES finally ‘popped’ up to the 4361.75 level at 11:48, pulled back to the VWAP at 4357.50 and then made four separate new highs at 4362 at 11:48, 4365.75 at 1:08, 4368.50 at 2:21 and 4369.75 at 2:38.

From there, it continued higher, hitting 4378.25 at 2:06 and then pushed up to 4387.25 at 3:16. The ES pulled back to the 4380 level at 3:29 and rallied up to a new high at 4388.25 at 3:45, dipped a little and traded 4386 as the 3:50 cash imbalance showed almost $3 billion to buy. The ES traded 4386.50 on the 4:00 cash close and after 4:00 the ES continued higher, settling at 4391 on the 5:00 futures close, up 39 points or 0.90% on the day.

In the end, like I said in the MrTopStep chat, I thought the ES and NQ closed OK Friday but I didn’t expect them to be up this much on Monday. In terms of the ES’s overall tone, it was firm but the NQ was firmer. In terms of the ES’s overall trade, volume was still high at more than 2 million contracts as quarterly opex is just a few days away and as we roll contracts to September.

Technical Edge

Yesterday’s push in the Nasdaq let us bail on the remainder of our QQQ swing from last week. Now we await the CPI results.

S&P 500 — ES (September Contracts)

The S&P popped higher, rallying ~100 points in a two-day rally on June 1st and 2nd. Then it consolidated sideways and is pushing higher once again. It’s through the first upside extension (near 4375). If it continues higher, that 4420-25 area is of major interest.

SPX

As for today’s levels:

SPY

NQ

Nice breakout of that zone and push to 15K. If we continue higher, 15,140 is possible.

QQQ

WYNN

WYNN gave a recent bounce off the 200-week moving average and now sits just below the last week’s high of $104.23 and downtrend resistance.

This is now our typical setup, but the bounce off the 200-week caught my eye. IF we can push over $104.23 and hold above it, the $108 gap-fill and 61.8% retrace up near $109 could be in the cards.

Just below $100 is a reasonable stop.

LLY

So much strength in LLY and CAH, as they have been on our relative strength list for a while now.

If we get a sharp correction low, keep an eye on the $420-23 zone. There’s layers upon layers of support in that zone.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

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Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!