OVERVIEW
High Inflation? No Problem.

Yesterday's trading session showcased remarkable resilience in the US markets. The latest data from the US Bureau of Labor Statistics revealed that in April, the Producer Price Index (PPI) for final demand rose by 2.2% compared to the previous year, aligning with market expectations. This increase followed a revised 1.8% uptick in March (initially reported as 2.1%). Similarly, the annual core PPI also witnessed a 2.4% uptick, echoing March's figures and meeting analysts' forecasts. Regarding monthly changes, both the PPI and core PPI experienced a 0.5% increase in April.

These developments didn't faze the market. Despite the "underwhelming" PPI data and Jerome Powell's hint at prolonged higher interest rates, Wall Street remained largely unfazed. The S&P 500 traded just a few points below its all-time high, demonstrating resilience. Additionally, the tech-heavy Nasdaq followed suit, breaking out of a two-day consolidation on significant volume.

According to a survey conducted by 22V Research, nearly half of investors, totalling 49%, anticipate a "risk-on" market response to the Consumer Price Index (CPI) report, whereas only 27% anticipate a "risk-off" reaction.

Anthony Saglimbene of Ameriprise commented, "Investors anticipate a decrease in inflation for April. Even if the decrease is marginal, markets are seeking additional confirmation that the downward trajectory of inflation persists and, notably, is not poised to reverse course and increase."

Today

In yesterday's publication, we emphasised the importance of both Tuesday and Wednesday. Just before today's trading session kicks off, we're eagerly awaiting the unveiling of five critical economic reports:

• Month-over-month core inflation rate

• Year-over-year core inflation rate

• Month-over-month inflation rate

• Year-over-year inflation rate

• Month-over-month retail sales

This influx of data is likely to stir significant market volatility. Optimistically, we anticipate that even if the CPI data proves strong or weak, equities markets will maintain strength. Any pre-market gap down or dip is expected to be swiftly bought up.

Nasdaq

In yesterday's session, the tech-heavy Nasdaq experienced a notable surge on high trading volume, persisting in its upward trajectory beyond its Point of Control (POC) at $441 and penetrating a substantial supply/demand (SD) zone spanning from $441 to $446.

Presently, the QQQ finds itself at the upper boundary of this SD level, requiring a push beyond $447 for large caps to fully exit challenging territory.

That being said, the index is demonstrating remarkable strength, and yesterday's response to the Producer Price Index (PPI) fills us with confidence that we may be witnessing the early stages of the next bull run.

It will be telling to see how today’s inflation data will be digested.

S&P Midcap 400

The MDY also displayed considerable strength in yesterday's trading session, particularly within an uptrend. Initially, it underwent a brief downturn following the release of the Producer Price Index (PPI). This led midcaps to revisit Monday's opening price and the upper boundary of a critical demand zone situated at $549. As expected, this zone acted as a support level, prompting buyers to step in and defend it. Consequently, the index closed the day forming what is commonly referred to as a "hammer candle."

In an uptrend, a hammer candlestick pattern is bullish and signifies potential further upward movement. It typically features a small body near the top of the candlestick and a long lower wick or shadow. This formation suggests that although there was some downward pressure during the session, buyers managed to push the price back up, indicating their strength and the potential continuation of the uptrend.

Russell 2000

In yesterday's session, the small caps made a significant move by breaking out of their brief volatility contraction pattern (VCP). This breakout occurred on the highest volume observed in two weeks.

Notably, the IWM exhibited a gap above Monday's highs. Similar to the MDY, any initial downward pressure following the release of the Producer Price Index (PPI) was swiftly countered. Buyers quickly stepped in, particularly around the $206 demand zone and Point of Control (POC), leading to a sharp intraday reversal. Consequently, the Russell 2000 closed at its highest level in one month.

DAILY FOCUS
Strongly Depends On CPI

Our strategy for today hinges on the market's response to the economic data scheduled to be released an hour before the market opens. While it's challenging to forecast investor behavior, if yesterday's session serves as any indication, it's likely that strong demand will persist, mitigating the possibility of a significant downward plunge.

Nevertheless, this outcome remains uncertain. We acknowledge the heightened volatility and the potential for market participants to become wary, leading to profit-taking and a short-term sell-off.

Our primary focus today will be on monitoring the market's reaction to the Consumer Price Index (CPI) and adjusting our trading strategy accordingly. Should we observe a positive response to the CPI data and witness our high relative strength leaders breaking higher, we will proceed with initiating positions as per our usual strategy.

Conversely, if there is a negative sentiment surrounding the economic report, we will exercise caution and refrain from making any new trades, opting to stay on the sidelines until the market outlook becomes clearer.

WATCHLIST
Our Focus List

SMCI: Super Micro Computer, Inc

• SMCI exhibited significant strength in yesterday's trading session, nearly prompting us to initiate a long position. However, due to the scheduled release of the CPI today, we opted to hold off on introducing exposure.

• Today, we'll closely monitor the stock's reaction, particularly any break above the declining resistance level, which would signal a buying opportunity for us.

• Our target entry range lies between the mid $830s to low $840s, coinciding with the declining daily 50-day Exponential Moving Average (EMA), which has previously served as resistance on multiple occasions.

AFRM: Affirm Holdings, Inc

• Similar to SMCI, AFRM is maintaining its multi-month Volatility Contraction Pattern (VCP) and is approaching the conclusion of its pennant formation.

• We're closely monitoring for a breakout above the $34.75-$35 range, which would prompt us to initiate long exposure.

• Given the heightened volatility today, it's crucial to remain vigilant, especially considering the potential for "fake" breakouts that reverse intraday.