Dow Jones Daily Chart:
We've got liftoff! Resistance breaking to the upside as rate cuts are considered very likely this year.
Inflation cooling, jobs data cooling.
I'm looking for retests. Next week will be big...
- Nick
This marks the fourth month in a row of declines for CPI in the US. That is the first time it's happened since January of 2023 which suggests the trend could continue lower to the Fed's liking.
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Retail seems to be heavily long dollar and oil while shorting the US indices except for RUSSELL. Gold remains mixed with DOW and DAX.
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As yields take a tumble, bond prices jumped on cooler inflation data. The 10 year treasury note is now considered a strong bullish reading on the EdgeFinder due to the reinforced belief that a rate cut will happen this year, even as soon as September.
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The NASDAQ dropped as much as 2% at the time of writing this marking a long overdue pullback in the tech market. If the rotation out of big tech continues, we might see the NAS100 give back all of its July gains or more. Big names like NVDA, MSFT, AAPL, GOOG and META are all down between 2-3% after this CPI data.
-Frank
Gold 4H Chart:
Today's CPI report really helped the bulls out - we see price breaking through resistance, and I've trailed stops further into profit in VIP.
- Nick
🚨This morning's CPI came in lighter than expected
Unemployment claims also came in lower than expected
On a long term trend of the S&P, price is up against the top of a channel on the 1D timeframe. A break in this could lead to a completion of the move higher towards the $5,700-800s level where there is another long term trend line. We have to keep in mind that tomorrow's CPI is going to be another catalyst for the stock market.
If CPI comes in hotter, the markets may react negatively and respect the current trend line resistance. If CPI is sticky or edges lower, it may boost price above this line. If the melt up isn't over, we could still see another 3+% to the upside on the SPX500. The market needs a reason to turn lower, and if inflation can't give the bears a green light, it's going to be hard to think of this current price level as the top. -Frank
Check Out This Week's COT Data🔥
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S&P 500
Markets push higher as we approach CPI data on Thursday. Fed chairman Jerome Powell is set to speak today and tomorrow as well. More questions about the economy and the Fed’s policy for the rest of the year will likely not be answered by Powell. He has remained extremely vague and neutral to the data to avoid any market stir, but investors are anticipating a Fed cut this September.
This CPI study shows us the trends in Europe and US over the past 3 years. Although both inflation rates could be experiencing sticky behavior, the US is struggling to dip under 3% inflation unlike Europe.
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Retail is majority long the dollar which is a sign that the dollar will be weaker. Indices are mixed with gold while oil is getting bought by the crowd.
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There was a large divergence in COT last week between mega caps and small caps as the DOW, SPX, and NAS all saw buys from smart money while the RUSSELL was one of the largest shorted for the week. I would imagine that this Friday's COT report will be different. We could see selling on the big indices and buying on the small caps.
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If you're wondering why stocks are down today:
They're not.
Absolutely fascinating day! Market seems to be selling out of megacaps and into the average stock.
- Nick
Silver, Daily Chart:
Price action is clearly breaking out in recent weeks. We see strong demand for silver leading to fresh higher highs and hower lows.
My entry (which admittedly narrowly missed being stopped out) is now back in the green.
Stops trailed in VIP.
- Nick
As market drop, small caps jump higher on cooler CPI data. The RUSSELL is very much interest rate sensitive and has been a sector lagger and is now leading gains over the other indices. One thing to note is that we could be seeing a rotation from mega caps and big names into the other indices that had fallen behind.
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GBP/USD
GU works its way back to a double top on the 4H timeframe on pound strength. Powell’s remarks yesterday were still dovish as he said holding rates too high for too long can be damaging to the economy. This further reinforced an interest rate cut this year which is expected to come as soon as September. Meanwhile, the BoE remains hawkish to monetary policy as they decided to keep rates the same even after reaching their inflation target. In the race to cut interest rates, US might do so before the UK.
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GBP/USD
Will one cut even do anything for the US economy? No, probably not. I think what investors want to see is the start of the cutting trend so we can anticipate lower rates in the next few years. The BoE, on the other hand, is now at 2% inflation and still won’t cut. The pound looks stronger than the dollar right now. GU has closed above a strong, long-term wedge pattern.
Gold
Gold works its way higher and nears the all time highs while Powell testifies. There is lots of pressure on the Fed to cut interest rates regardless of where inflation sits and where it’s projected. Regardless of the reason to cut, gold will likely see some bullishness from investors due to a weaker dollar.
A Smart Money study suggests that both institutions and retail are pulling out of the euro. This is not a good sign for the EU pair which is currently a strong bullish bias on the EF.
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NASDAQ 1D Chart:
Price still looks very strong overall, with technology continuing to lead the way.
If price pulls back, I may look to add to my technology exposure.
- Nick
Seeing strong biases against the dollar on both sides is very telling. Regardless of ECB's decision to cut rates, a handful of factors point towards a bullish euro. The dollar seems to be more sensitive to sentiment driven factors such as CPI.
If we get signs of cooling inflation, the EU bulls will be happy. If inflation looks sticky or ticks higher, it will add to the rate cut uncertainty in September.
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