Crypto rally halted.Have the Indices also hit the highs?
CPI will be the tell
Market vs. Economy: Navigating Current Trends
Dear Traders,
I think it's crucial to start this off by making one thing crystal clear: the market and the economy are two different beasts. It's a common misconception to correlate them as one entity, but in reality, they often tell different stories. Despite rising prices in utilities, food, housing, and more, we're witnessing the stock market flaunting its strength with the seventh consecutive green week. It's been an incredible rally, arguably one of the largest in recent years, and yet, volatility remains at an annual low. There's a palpable absence of fear, even as indices hit new highs and people are buying into these peaks, driven by the Fear of Missing Out (FOMO) and the anticipation of further gains. The crypto market, too, isn't lagging – it's picked up remarkable momentum, seemingly out of nowhere, fueled by speculation around the first Bitcoin ETF by BlackRock.
But let's pivot back to the indices for a moment. As many of you know, I'm not a fundamental trader. I don't dwell on news or financial data releases. My trading account isn't bulging with tens of millions, so I don't play the long-term fundamental game. Instead, I rely 100% on chart analysis. The charts, in my experience, tell the entire story. Once you're adept at reading them, you understand that the news merely adds momentum to a move that's already in motion.
In our recent weekend review, I highlighted that the Nasdaq (NDX) is approaching serious resistance, indicating a potential pullback. My primary focus, however, remains the S&P 500 futures (SPX). The Nasdaq and S&P 500 often move in tandem due to the overlap in heavily weighted stocks in both indices.
We're currently at a juncture in the S&P futures that, according to my methodology, suggests a high probability of a significant downward reaction. No system is foolproof or 100% accurate, but mine does offer a substantial degree of certainty in predicting potential outcomes.
After a seven-week climb, we've reached a zone that could serve as a strong resistance point, potentially leading to a substantial pullback – one that might catch many investors off guard. Tomorrow's CPI data, a crucial measure of inflation, will be a significant factor for the Federal Reserve's monetary policy and impending rate changes.
Despite what the reported numbers might suggest (and let's be real, they're often questionable), everything from groceries to utilities has nearly doubled in price. However, I'm less concerned with these numbers and more focused on the charts. In my opinion, a pullback is on the horizon. I'm not predicting a market crash but rather a 70-100 point adjustment – a 'buy the dip' opportunity, retreating to an untested area of support for a potential long swing.
As a seasoned trader, I've learned to prepare for such scenarios. Another aspect to consider is the current rollover period in the indices. The ES/S&P has experienced a 50-point gap up, creating a void that likely needs to be filled. Given our current position, this seems increasingly plausible.
To reiterate, I'm not a financial advisor, nor am I suggesting any specific course of action. This is simply an observation from my years of experience and understanding of our current trade location. As always, apply this insight to your own technical analysis and keep your risk management front and center.
The upcoming Tuesday, with the CPI release and rollover period, promises to be intriguing. Stay cautious, wait for the right setup, and remember – there's always another opportunity around the corner.
Stay sharp and trade smart,
Ryan Bailey
Founder / CEO