Weekly Wisdom: Light CPI Boosts Sept Rate Cut Odds

Greetings fellow traders and welcome to your July 11th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, July 8 – July 12:

• Markets have grinded higher for the past couple of weeks with summer seasonality helping give equities a boost into this week’s CPI report.  
• $SPX futures have been green every day for the month of July as traders braced for the CPI inflation report, with new all time highs made just this past Wednesday up at 5690.  
• CPI was reported light on Thursday morning, which put forth a massive rotation trade in equities, seeing $IWM trade up over 3.5% intraday while the $QQQ traded down as much as 2% intraday.  
• Data for the week started on Monday afternoon with consumer credit coming in higher than expected at 11.4 billion vs 9.7 billion expected.  
• Tuesday started off with a beat for the NFIB Small Business Index coming in at 91.5 vs 90.3 expected. Fed Chair Powell testified on Tuesday and Wednesday morning but did not make any meaningfully new comments regarding monetary policy, emphasizing that the data will pave the pathway for what comes next and when.  
• Wednesday brought data for final wholesale inventories which was in-line at 0.6%. The 10-year bond auction in the afternoon was met with solid demand, helping to send interest rates lower.  
• Thursday was the big data day for the week, which brought a light and favorable inflation report, with CPI y/y coming in at 3.0% vs 3.1% expected; core CPI y/y was 3.3% vs 3.4% expected; CPI m/m was -0.1% vs 0.1% expected; core CPI n/n was 0.1% vs 0.2% expected, with the total of all four metrics delivering lighter than estimated inflation results. Weekly unemployment claims was a beat at 222,000 vs 236,000 expected. The 30-year bond auction in the afternoon was a bit weaker than the prior day’s 10-year auction.  
• Friday, July 12 ends the week with further inflation data, including PPI and core PPI numbers at 8:30 a.m. ET. Later in the morning, we’ll see the updates for University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET.  

Here’s what we are eyeing next week, July 15 – July 19:

Level Highlights:

• $SPX futures made new all time highs on Wednesday at 5690 before our latest CPI report was delivered.  
• All four CPI metrics delivered lighter than expected numbers which enabled a big rotation / unwind trade that saw the $IWM trade up over 3.5% at the same time the $QQQ traded down 2% during the trading session.
• Given that $SPX futures have much more weighting from $QQQ components, $SPX futures faded off of highs on Thursday following the CPI report, trading down from a morning high of 5686 to current intraday lows of 5630, giving daily charts a bearish reversal candle.  
• Given that markets have been working higher over the past couple of weeks, there are multiple support levels lower for $SPX futures to test on the way down.  
• The first major support for $SPX futures to test on the way down is 5600, followed by 5570, 5555, and then 5510.  
• A close below 5500 risks putting the market in a downtrend, with a close below 5570 breaking upside momentum.  
• $VIX has been unable to close above 13.50 since the end of May, trading to a high of 13.33 on this Thursday CPI day.  
• For the $VIX, 13.50 and then 14.00 are the major levels to watch on the upside, with closes above either potentially triggering further selling in $SPX futures.  

Upcoming News:

• Monday, July 15 starts the week off with the Empire State Manufacturing Index at 8:30 a.m. ET. We are then set to receive a speech from Fed Chair Powell at 12:00 p.m. ET.
• Tuesday, July 16 we will see Canada report their latest CPI inflation updates at 8:30 a.m. ET. We will also receive updates for retail sales m/m, core retail sales m/m, and import prices m/m also at 8:30 a.m. ET. Later in the morning, business inventories m/m and the NAHB Housing Market Index are reported at 10:00 a.m. ET.  
• Wednesday, July 17 begins with updates for building permits and housing starts at 8:30 a.m. ET. These are followed by industrial production m/m and capacity utilization rate at 9:15 a.m. ET. Later in the afternoon, the Fed Beige Book is released at 2:00 p.m. ET.  
• Thursday, July 18 brings us weekly unemployment claims as well as the Philly Fed Manufacturing Index at 8:30 a.m. ET. The ECB is set to give a press conference just after at 8:45 a.m. ET. We’ll then get the update for the CB Leading Index m/m at 10:00 a.m. ET.  
• Friday, July 19 does not bring any meaningful data to end the week, but there will be more Fed speakers throughout the day.  

Here’s Your Chart of the Week:

Via CBOE: While the VIX has stayed subdued under the 13 level for multiple weeks, stocks under the surface have still been moving including $TSLA’s recent short squeeze higher, with single stock volatility at a record high vs the index.

Source

SPY Daily Update:

$SPY daily chart giving a bearish reversal daily candle post-CPI, which is a day to take notice of. Some support below can be found at 554 and then 550.

SPY Weekly Update:

$SPY weekly chart is still green for the week, but giving a large upside tail with one more trading session left in the week. 542.50 is a major $SPY weekly level from support over the past three weeks that would end the uptrend if markets were to close below.

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:48pm ET July 11, 2024

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