NDX futures are testing the lower end of yesterday’s trading range at 12930.50 before a bounce. The oscillations tell us that the rally has lost energy and is susceptible to a decline.
Today’s op-ex shows Maximum Pain at 12880.00, while long gamma begins at 12900.00. Short gamma is light, so the pain may increase at lower levels.
ZeroHedge observes, “While it won’t have the market impact of recent CPI prints – as attention is now far more focused on the credit crunch and economic contraction resulting from the massive regional bank deposit run – Wednesday’s CPI report will still have a powerful effect on risk assets (and, as Goldman noted today, it could send stocks as much as 2% higher or lower).
This report is structured into three segments: i) what consensus expects; ii) key things to focus on, and where surprises may be hiding, and iii) how the market may respond.
I. Consensus Expectations
- Headline inflation is expected to drop to 5.1% Y/Y from 6.0% Y/Y in March, while the core gauge is seen rising modestly from 5.5% in March to 5.6%.
- On a sequential basis, consensus expects a slowdown to 0.2% M/M from 0.4% at the headline level, while core CPI is seen dipping to 0.4% from 0.5%”
SPX futures are consolidating within yesterday’s trading range, waiting for the CPI numbers. The April 4 high remains the top tick. An aggressive sell signal awaits beneath round number and trendline support at 4100.00. Confirmation lies at the 50-day Moving Average at 4031.85.
In today’s op-ex puts dominate at the 4100.00 strike and below (short gamma), while long gamma starts at 4110.00. Options appear to be on a razor’s edge.
ZeroHedge reports, “US stock futures traded in a very tight range on Wednesday as investors held off on making big trades ahead of today’s CPI print which is expected to provide clues on the Federal Reserve’s outlook for rate hikes. Contracts on the S&P 500 were up 0.2% at 7:45am ET while Nasdaq futures were fractionally in the red. The Bloomberg Dollar Spot Index was little changed, as Treasury yields edged higher across the curve, mirroring moves in European bond markets. Oil and gold rose. Bitcoin was flat after a four-day gain, its longest streak in three weeks.”
VIX futures are edging higher, to 19.38 this morning. While April 6 may have been the Master Cycle low, confirmation for a buy signal awaits at the 50-day Moving Average at 20.63. Once confirmed, the new trend may continue to late May.
USD futures are edging lower as the market awaits the CPI report. The Cycles Model suggests a pivot at the end of the month. However trending strength may come back by next week and last for the duration.
TNX is edging higher, at 34.60 and may challenge overhead resistance at 35.09-35.51. The Master Cycle low has been established last Thursday and the uptrend may become more evident, especially early next week, as trending strength comes back.
ZeroHedge remarks, “Inflation will soon plateau at a higher level than the market expects, but this is historically not a sufficient reason to prevent the Fed from cutting. Kneejerk flattenings in the yield curve from higher-than-expected inflation should eventually lead to re-steepenings.
Today’s data is expected to show a continuation of the trend in falling headline CPI, but stubborn core inflation, expected to rise to 5.6% from 5.5%.
Leading indicators expect the fall in headline CPI to continue for now, but it is in core where we can do a biopsy to see what is going on under the surface.
The San Francisco Fed splits core PCE into cyclical and acyclical inflation. Very simply, cyclical inflation are those inputs most correlated to Fed policy, and acyclical is anything left.”
Crude oil is breaking out above its previous high and, with a week to go in its Master Cycle, may take aim for the Cycle Top resistance at 97.11. The Broadening Wedge formation may have failed, as crude refused to stay under the trendline.
OilPrice.com reports, “Despite OPEC+’s surprise production cut, the global oil market will remain in surplus this year and next as demand growth could be hurt by lower-than-expected economic growth in the coming months, the U.S. Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO).
The latest forecasts include declining production in OPEC and Russia, yet the EIA still expect global oil production to increase by 1.5 million barrels per day (bpd) in 2023, due to strong growth from non-OPEC countries excluding Russia. Non-OPEC+ production growth will largely be driven by North and South America, the administration said.”