Good morning traders, if you can’t tell by the title but today is all about the CPI report. It’s that simple and binary that could trigger a run for a couple days. The simple part of it is if the report exceeds estimates stocks will fall, bonds will fall, Yields will rise, and the dollar will get stronger. If we miss estimates stocks will rise, bonds will rise, yields fall and the dollar will weaken. Which ever it is has the potential to carry strongly for a few days. I won’t be surprise if we get a pop back up briefly and roll over from there this is actually what I expect. Bonds are at a key breaking point, that line in the sand on the 10-year bond (/ZN) is 113’05. We break below that look out because the selling will be violent. This will also have a direct effect on the leading sector which is tech. Tech is the biggest sector and also so where the biggest borrowers are, so when ever the rate goes up tech get adversely affected.
Key levels to watch for … Resistance (jack) 410-411(queen) 412-413and (king) 414-415area. Support (jack) 409 (queen)408-407and (King)406-405. The main thesis for the day is a BEARISH bias closing below 410.93 with a projected target/low of between 410-405. Alt thesis is BULLISH bias closing above 410.93 with a projected target/high of between 411-415. The main channel we are in is between 397-416. Yesterday, market strength and breadth opened gap down and even though strength and breadth climbed up pretty steadily from lows of the morning price action diverged on the day. Everything is going to be based on the CPI report if we miss, I expect strength to open very weak and probably a pop up before rolling over and continuing lower. We stay within estimates we could get a very strong push up and delay a rollover briefly. We have Dissonance between the technical side which is (BULLISH) and the Quant side (BEARISH bias). The futures have a bearish bias for the day with dissonance between the technical (bullish) and the Quants (bearish). Scenarios for the day:
1) Expanded Range Day structure. we could get a premarket pop. Experience some dip buying early bringing us back to test resistance and giving another try at breaking resistance but rolling over later in the day. Vise versa 33.3% probability
2) Rounded reversal day type structure. We could get a continued push higher toward jack or queen resistance area and find midday chop around either queen or king resistance before going back down with the same energy or force we went up with the first part of the day or vice versa. 33.3% probability
3) Trend day down we open gap down and start with a push back toward the previous close. We find resistance on or before the previous close then begin the downtrend for the day. We usually find midday chop around either possible queen or king support area (key to watch today is for a failed trend day where we push up from target) 33.3% probability