As the Federal Reserve ratchets up interest rates, inflation has started to cool, according to many recent economic reports. Most recently, wage growth rose less than expected in the December non-farm payrolls report, resulting in further assurance that a wage-price spiral has not developed. Average hourly earnings from previous months also included significant downward revisions, giving hope that price pressures will finally melt away
Snapshot: Investors today will see if that trend is continuing when the Department of Labor publishes the latest Consumer Price Index. Headline inflation is expected to rise 6.5% Y/Y in December, easing from 7.1% in November, and dropping for the sixth consecutive month. Core CPI – which excludes volatile food and energy prices – is expected to increase 5.7% vs. 6.0% in November, but it comes as a new term emerges for market watchers to focus on – “supercore inflation.”
Fed Chair Jerome Powell mentioned at his December press conference that the services component of inflation, excluding housing, was particularly concerning as that tends to be harder to root out than goods inflation. Some are even going more hardcore, sizing up the figure without housing and healthcare, or even other categories. Also keep in mind that Fed policymakers generally give more weight to core personal consumption expenditures, rather than the CPI, which has diverged more than usual since early last year.
Prior Session was Cycle Day 2 (CD2): Futures prices continued to rally as optimism on the CPI print this morning continued to spread widely across market participants. FOMO was a driver should the print be better than expected, as no portfolio manager/trader wants to be “left-behind” on a positive print, yet willing to get slammed on a disappointing report. Call it the “trader mentality.” Prior range was 58 handles on 1.333M contracts exchanged.
…Transition from Cycle Day 2 to Cycle Day 3
This leads us into Cycle Day 3 (CD3): Three-Day Cycle Rally is in-place as the all-important CPI print is due for release @ 8:30 ET. We’ll mark today as a “wild-card” with the pending report. As such, estimated scenarios to consider for today’s trading.
Bull Scenario: Price sustains a bid above 3990, initially targets 4025 – 4030 zone.
Bear Scenario: Price sustains an offer below 3990, initially targets 3955 – 3950 zone.
PVA High Edge = 3976 PVA Low Edge = 3948 Prior POC = 3960
Range Projections and Key Levels (ES) March 2023 (H) Contract
Nasdaq 100 (NQ)
Today is Cycle Day 3 (CD3)…Three-Day Cycle Rally is in-place as the all-important CPI print is due for release @ 8:30 ET. We’ll mark today as a “wild-card” with the pending report. As such, estimated scenarios to consider for today’s trading.
Bull Scenario: IF Bulls sustains bid above 11475, THEN initial upside estimate targets 11610– 11620 zone.
Bear Scenario: IF Bears sustains offer below 11475, THEN initial downside estimate targets 11345 – 11335 zone.
PVA High Edge = 11451 PVA Low Edge = 11326 Prior POC = 11416
Range Projections and Key Levels (NQ) March 2022 (H) Contract
Trade Strategy: Our tactical trade strategy will simply remain unaltered…We’ll be flexible to trade both long and short side from Decision Pivot Levels. Continue to focus on Bull/Bear Stackers and Premium/Discounts. As always, remaining in alignment with dominant intra-day force increases probabilities of producing winning trades.
Stay Focused…Non-Biased…Disciplined ALWAYS USE STOPS!
“Knowing is not enough, We must APPLY. Willing is not enough, We must DO.” –Bruce Lee
*****This trade strategy report is disseminated for “education only” and should not be viewed in any way as a recommendation to buy or sell futures products.”
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