Would You Look at That…Stocks Rip on Bad CPI Print
Taking it easy ahead of earnings and after a huge day.
Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.
Our View
Guys/gals, traders/faders —
I know we said we are going to keep this short yesterday, but it worked like a charm and we’re going to do the same thing today.
The CPI report consists of four readings and every one of them came in ahead of expectations yesterday. It all but cements the Fed’s predetermined rate-hiking plan. Going into yesterday’s report, we were ready for one of two things:
“It’s going to be an algo run regardless. Hot numbers and they’ll tank it. Cool numbers and they’ll likely rip it.”
Well it was hot and the market tanked…but then it did something funny. It found its footing at the 3500 level (in the SPX), a zone we have been highlighting ad nauseum over the last few months. That’s been on the “big picture” write-ups and in the videos.
The SPX ripped off this zone and many traders walked away with a six-figure day. Pat yourself on the back if you were one of them! If not, take notes so you can be on the bandwagon next time.
Our Lean — Danny’s Take
Clues were piling up about today’s action. It started when the VIX was negative going into the open (and shortly after the open) despite the pounding in the ES and SPX. Then the dollar began fading.
At that point, a long S&P was the perfect trade and it was highlighted to (near) perfection in the Technical section below.
Everyone who caught a huge chunk of gains on Thursday might want to consider just taking Friday off. I try to do that whenever I hit a huge winner so it doesn't go to my head and so I don’t give back the gains.
There’s a lesson in that, you know.
Anyway, we have a bunch of bank earnings on Friday morning: JPMorgan, Citigroup, Wells Fargo and Morgan Stanley. If the market reacts well to this, it could be pedal to the medal and up we go.
That said, I can’t help but notice that the SPX and ES are stalling right near ~3700 and the declining 10-day ema/21-day sma.
Our Lean: I would love a little back-and-fill to work off some of today’s reversal, but holding a bulk of the gains will be key as earnings season gets underway. Watch 3660-ish, the overnight low on the downside.
On the upside, keep an eye on the 3700 level, then 3715 and lastly, 3735 to 3750. Yesterday they bought the 25- to 40-points dips. See if they do it again today.
Daily Recap
The ES came into the morning doing well, then tanked more than 140 points after the CPI reading came in hot. After that, it was a full on reversal. Notice it bottomed into the opening minutes and quickly rallied 60 points.
Then it dipped 24.5 points into 10:30, before ripping off a 137.5 point rally. This day was absolutely nuts. It was a 95% downside day at the open that turned into an 80% upside day. Despite the massive upside move, the dips were still deep, as the ES pulled back 44 points just after noon.
From there, it rallied another 56 handles, dipped 25 points and rallied 35.50 points into 3:00. The ES traded ~3685 at 3:50 after the MIM revealed $244 to buy. The ES settled at 3680.25 at the 5:00 futures close, up 93 points or 2.6% on the day and up ~180 points off the low or more than 5%.
In the end, it was one big bull reversal. In terms of the ES’s overall tone, it was robustly bullish — a freight train to the upside. In terms of the ES’s overall trade, volume was heavy at 3.2 million contracts — the third highest volume day of 2022.
Technical Edge —
NYSE Breadth: 79.5% Upside Volume (but was 93% downside at open)
Advance/Decline: 70% Advance (was 95% decline at the open)
VIX: ~$32
Game Plan: S&P
Working from the top down with the S&P (Weekly, daily, intraday timeframes) with a trade on the ES and SPY/SPX at the bottom of each in bold.
Cheers.