April 10th, 2024

The core is hot. The CPI figures may have taken the market aback, but should it really be a surprise? Unless you’ve been out of the loop, we’ve all recognized that inflation continues to loom large in our lives. The 10-year yields have been steadily increasing, signaling that rate cuts are improbable. The top macro analysts I follow have been predicting this outcome. Take a breather and let the dust settle, and we will soon discover how much of a shock this data is to the market.

Today’s momentum will be crucial. If this sell-off persists throughout the day and we close at the lows, then perhaps we are facing a new market environment, one truly shocked by these figures. However, an early sell-off followed by a midday bounce could simply signify a return to the more predictable pattern of market highs.

As for my approach today, I’m keenly observing the Year-to-Date (YTD) Volume Weighted Average Prices (VWAPs) in the major indexes. They act as a pivotal market area. I find them especially interesting as they reflect the likely average positions. If we start to dip below these, it may trigger some stop losses and lead to capitulation. If they hold firm, we could witness a significant rise off those lows.

The current YTD AVWAPs for today: RTY – 2045, NQ – 17,953, ES – 5084.

RTY is already trading near 2045, making it a crucial figure to watch this morning. If it can’t be defended by the bulls, a significant sell-off in RTY is likely. Keep a close eye on ZN – a rebound could trigger a short covering rally in RTY.

NQ seems to be heading towards 17,953, with little evidence to suggest otherwise. My short-term strategy is to focus on shorts today, unless there’s a dramatic turnaround in rates, and the 10-year yields start to fall rapidly.

ES will likely follow NQ’s lead. If NQ begins a downward spiral, ES is expected to follow suit, and possibly in a substantial manner. With the YTD AVWAP far down at 5083, there’s room for a significant drop this morning. I don’t foresee them hitting this low, but I certainly won’t be bottom feeding.

Today is focused on the big players adapting to CPI. Anticipate a busy day, predominantly on the short side, but it could also swing both ways if the bulls can guard the YTD AVWAP in NQ and RTY. Trade small and be smart.

Cheers, DELI

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