You Shouldn’t Be Surprised With That Dip

CPI was too hot

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Our View

Yesterday’s sell-off was a long time coming and it was telegraphed to us on Monday. There are a few things we just can’t downplay:

What happens is, the markets start going up and the Fed wants to keep the ball rolling but in reality, the numbers don’t add up. It doesn’t help when everyone is looking for a rate cut and then the data doesn’t support it. 

I have to be honest, I thought there were a few more down days on the way — but the rally and this note from the PitBull “Any mid month money coming in tomorrow?” — casts some doubt on that idea.

MiM and Daily Recap

The ES traded down to 5017.00 on Globex at 7:12 am and then traded up to 5025.75 at 8:27 and traded 4967.50 after the CPI report was released. CPI was up 3.1% on an annual basis. Economists polled by Dow Jones expected CPI to have increased by 0.2% month over month in January and 2.9% from a year earlier. 

Literally, the ES traded hundreds of points in 3 minutes and then dropped down to 4967.50 and opened Tuesday’s regular session at 4975. After the open, the ES traded 4969.25 and then rallied up to 4982.00 at 9:38, traded down to 4961.75 at 10:18 and then rallied up to 4977.50 at 10:25, did a sideways-to-up back-and-fill and traded up to a 4988.25 at 11:41. After the high, the ES sold back off down to 4947.25 at 2:27. 

After the low the ES back-and-filled a bit and then traded up to 4959.00 at 2:39 and then sold off down to new low at 4936.50 at 3:23 and then popped up to 4959.50 at 3:45 as the early imbalance showed $32 million to buy. The ES traded 4956.50 as the 3:50 cash imbalance showed $2.2 billion to sell and then traded all the way up to 4971.25 at 3:57 and traded 5071.25 on the 4:00 cash close. After 4:00, the ES traded up to 4974.25 and settled at 5073.25 on the 5:00 futures close, down 62.5 points or 1.24%. The NQ settled at 17,699.25, down 230 points or 1.28% on the day. 

In the end, the Fed will be lucky if they can lower interest rates in the second quarter and the index markets sold off sharply because of it. In terms of the ES’s overall tone, it was weak but the late-day 37.5-point rip was death-defying. In terms of the ES’s overall trade, volume was brisk: 380k traded on Globex and 1.690k million traded on the day session for a total of 2.07 million contracts traded.

A note from Goldman Economists: 

“This CPI print is disastrous for the camp expecting near-term rate cuts. We’re still going through the details, but nothing jumps out to me as any kind of indication that the data is a one-off, or that there will be a reversal next month. -The total core rose the most since May, core services rose 0.7%, the most since September 2022, and core services ex-housing rose 0.849%, the most since April 2022. -In our outlook piece last week, we highlighted the risk that inflation would reaccelerate and that the Fed would be handcuffed in the first half of the year, unable to justify a rate cut in the face of high inflation pressure, strong growth, and a strong labor market. But we were not expecting to see such a big increase in the inflation data this soon, rather we thought that there might be a return of upward pressure in the next few months. -This is why Powell has been so reticent to declare victory on inflation and warm up to the idea that they should be adjusting rates lower. Barring a big shift in the tone of the data, we do not see a cut before June.”

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Technical Edge

Guest Post

PTG/Taylor 3 Day Cycle

Author: David D Dube’ (a.k.a. PTGDavid)

Website: https://polaristradinggroup.com/ 

Prior Session was Cycle Day 1 (CD1):  Markets declined as expected, though CPI Report was the catalyst for a “long-liquidation”, surpassing all statistically extreme cycle levels. (Note: This will have the effect of recalculating target projections for future cycles) Prior range was 103 handles on 2.003M contracts exchanged. 

 …Transition from Cycle Day 1 to Cycle Day 2

This leads us into Cycle Day 2 (CD2): Late day rally off extreme lows recovered price back to 5-Day POC (4970). Normal for Cycle Day 2 is for consolidation of recent wide-range activity. Market volatility has now increased, with expectations to remain elevated for the immediate term, which should provide ample intra-day trading opportunities. Our daily plan remains unchanged. Stay flexible and in-alignment with the primary intra-day forces. As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 4970, initially targets 4985 – 4990 zone. 

Bear Scenario: Price sustains an offer below 4970, initially targets 4960 – 4955 zone.

PVA High Edge = 4990       PVA Low Edge = 4960         Prior POC = 4970

EXCLUSIVE OFFER

*****The 3 Day Cycle has a 90% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.

For more detailed information for both bullish and bearish projected targets, please visit: PTG 3 Day Cycle and/or reference the Cycle Spreadsheet below:

Link to access full Cycle Spreadsheet  > > Cycle Day 2 (CD2)

Thanks for viewing…PTGDavid

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!