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Volatility? All Eyes on CPI – Looking Beyond the Data Release

June 10, 2021 (Investorideas.com Newswire) Market participants are all waiting with bated breath ahead of today’s CPI data release. It’s an important one after last month’s shocker. So, what’s your plan?

In general, data releases can be fickle and tricky events. While they may provide opportunities for algorithmic traders due to short-term spats of volatility, it can be challenging to initiate or exit a position as the market digests the data upon release. Longevity in trading can be achieved by being flat around data releases (or at least not highly leveraged); and/or having a what-if plan already in place.

Today’s CPI data (this publication is being written before the data release) could provide some fireworks. Last month, the expectations were for a 0.2% print, and we got 0.8%. Today, the market is looking for 0.4% for the CPI print (includes food and energy) and 0.5% for Core CPI (excludes food and energy). Could this be on the lofty side? Or, will inflation begin to spiral out of control?

Keep in mind that we are heading into a Fed Meeting June 15 -16 . If prices continue to rise at an exponential rate, will the Fed really be willing to raise interest rates? It would be appropriate by many standards to do so. However, the theme has been “lower for longer”; and this creates a sense of uncertainty as to what the plan may be if we get another huge CPI print. While neither you nor I have a crystal ball available, my inclination is that the print could be below expectations. If that happens, it would fit the Fed’s “transitory inflation” theme that was discussed in the past. We will find out at 8:30 AM ET today.

As traders wait on this data, the $VIX certainly caught a bump in yesterday’s trading.

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Figure 1 – $VIX Volatility Index March 10, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

We can see some technically bullish signs in the $VIX above, with some long daily tails on the candles coinciding with the April lows. RSI(14) and MACD(12,26,9) are showing bullish crossover signs. The $VIX can be a bit of a tricky barometer to trade technically.

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Figure 2 – SPY SPDR S&P 500 ETF March 9, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

The SPY indeed put in a down session yesterday with the $VIX higher. As we have been discussing, the S&P 500 is near the higher end of its range and will most likely need a catalyst to get moving one way or the other.

The 50-day moving average is $414.58 right now, which is only 1.676% away from the current price. A move down to the 50-day moving average could be of interest.

In addition, we can see the Fibonacci retracement levels of interest in the SPY from the May 19th low to the June 8th highs. We see the 50% retracement level @ $414.38 and the 61.8% retracement level at $412.26. I like how the 50% retracement level lines up with the 50-day moving average here.

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Figure 3 – SPY SPDR S&P 500 ETF March 9, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

Next, no one knows with any degree of certainty how the equity markets will react to the CPI print, whether it exceeds or misses expectations. Here is what we do know: the last data release brought the cash S&P 500 near the 50-day moving average, which held up well. It then tested the 50-day moving average four trading sessions later, and it once again held up very well. Could the same type of price action be in store this time?

Nobody knows. However, I am inclined to look for a move for a potential pullback opportunity, between $412.26 (61.8% Fibonacci retracement level above) and the 50-day moving average ($414.58 as of the close on June 8th). If the market moves higher off the CPI data, so be it. The market will be there tomorrow. Remember to monitor the 50-day moving average level, as it changes each day!

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Thank you.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

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