On Thursday, the markets may be particularly sensitive to the PPI data if it is reported as anything other than its expected .3% value.
My reason for expecting a market reaction is not based on the state of inflation, but rather the squeezed state of the S&P 500 (NYSEARCA: SPY) and Nasdaq 100 (NASDAQ: QQQ).
Yesterday I discussed how squeezed or compressed markets tend to have big moves when they break out of consolidation patterns.
I highlighted the Biotech ETF (NASDAQ: IBB) and the Semiconductor ETF (NYSEARCA: SMH) as two areas of the market to watch because of their consolidation patterns combined with squeezed conditions. SMH broke out of its consolidation yesterday, and continued to rally today.
IBB has not broken out yet.
In both the SPY and QQQ, the price compression as measured by the width of their 20-day Bollinger Bands is the lowest it’s been all year.
This compression, combined with the last 2 and 3 days, respectively of price consolidation, is likely to lead to a trend day very soon.
Inflation news could be just the catalyst the market needs to get moving.
The breakout could be in either direction.
In short, the market is likely to trend in the direction that it breaks out beyond the last 2-day range in the SPY and 3-day range in the QQQ.
However, I would not consider the market having successfully broken out until it also breaks its 30-minute Opening Range in the same direction as the daily range breakout.
Furthermore, I’d watch out for an initial gap lower, followed buy an Opening Range breakout to the upside. If this O.R. breakout occurs higher than the prior day’s daily low, the bulls may run the markets to new weekly highs.
Best wishes for your trading,
Geoff is filling in for Mish until Aug. 20th.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.