Inflation Ticks Higher, Market Sets Up For Fall

Inflation hasn’t gone anywhere.

So shows the economic data released Tuesday morning with the U.S. Consumer Price Index (CPI) report revealing an inflation uptick in January.

The news prompted early selling across the stock market before the day closed with mixed results.

Fear of data drives stock market reactions

Highly anticipated CPI data was revealed before the opening bell today and the stock market let loose a collective, “Well, that’s interesting.”

According to the CPI report, inflation rose by .5% for the month and 6.4% over the last year. The numbers were slightly higher than expected in economic circles, but didn’t have the harsh selloff effect that some expected with the hotter results.

Over the past 12 months, such data has spurred fear among stock market participants. The fear is that the Federal Reserve (Fed) would interpret these higher numbers as a need to continue hawkish actions to curb inflation.

But traders are cautioned to not get too comfortable after the mixed reaction today.

Don’t get comfortable with market moves higher

The stock market remains in a choppy state of volatility even after a lackluster response to CPI data today.

This follows last week which was tough trading because everyone was looking for a pullback that didn’t happen until the end of the week. This left little room for cautious trades.

Monday saw a reversal off the Friday lows that sent the market higher before the post-CPI mixed results.

In the market today, the Dow closed at 34,089.27 points to fall .46% (dropping 156.66 points on the day). The Nasdaq was the lone positive index, rising to 11,960.15  points for a .57% jump while the S&P 500 lost early gains to close down .03% to 4,136.13 points.

Neil Yeager, Futures and Training Room Content Provider at Simpler Trading, sees CPI report as a volatility event that will likely continue the market in a choppy range.

Neil is watching for a midweek move higher with a high possibility that the market slams back down into Thursday or Friday.

An initial move could push the E-Mini S&P 500 (ES) index futures higher toward 4,000, or even 4,200. This is supported by how overall everything has been bullish since the first of the year, Neil noted.

“Don’t get comfortable with these prices up here,” Neils said. “Even if the market is up, don’t look for it to stick. My caution is I wouldn’t get too carried away. If it gets to those prices on Wednesday, I’m putting on bearish exposure.”

That could include trades setups taking into consideration a possible market drop toward 3,950 on the ES.

Week of economic data releases looms over market

Neil sees today’s CPI report as the beginning of an economic-data fueled week of volatility.

CPI is followed by U.S. retail sales report and Volatility Index (VIX) expiration on Wednesday, the U.S. Producer Price Index (PPI) on Thursday and then options expiration (OpEx) on Friday.

“Worse yet, it’s February OpEx and that’s an anniversary date for the 2020 break of over 800 S&P 500 (SPX) points,” Neil said. “What I can advise is to buckle up.”

“Get careful about what’s next, which could be pulling the rug out from under traders and the market drops quickly,” Neil said.

For more on what Neil is seeing in the market, follow him along with the Futures Trading Team.