Volatility? All Eyes On CPI – Looking Beyond The Data Release

Market participants are all waiting with bated breath ahead of today’s CPI data release. It’s an important one after last month's shocker. So, what’s your plan?

In general, data releases can be fickle and tricky events. While they may provide opportunities for algorithmic traders due to short-term spats of volatility, it can be challenging to initiate or exit a position as the market digests the data upon release. Longevity in trading can be achieved by being flat around data releases (or at least not highly leveraged); and/or having a what-if plan already in place.

Today’s CPI data (this publication is being written before the data release) could provide some fireworks. Last month, the expectations were for a 0.2% print, and we got 0.8%. Today, the market is looking for 0.4% for the CPI print (includes food and energy) and 0.5% for Core CPI (excludes food and energy). Could this be on the lofty side? Or, will inflation begin to spiral out of control?

Keep in mind that we are heading into a Fed Meeting June 15 -16. If prices continue to rise at an exponential rate, will the Fed really be willing to raise interest rates? It would be appropriate by many standards to do so. However, the theme has been “lower for longer”; and this creates a sense of uncertainty as to what the plan may be if we get another huge CPI print. While neither you nor I have a crystal ball available, my inclination is that the print could be below expectations. If that happens, it would fit the Fed’s “transitory inflation” theme that was discussed in the past. We will find out at 8:30 AM ET today.

As traders wait on this data, the $VIX certainly caught a bump in yesterday’s trading.

Figure 1 - $VIX Volatility Index March 10, 2021 - June 8, 2021, Daily Candles Source stockcharts.com

We can see some technically bullish signs in the $VIX above, with some long daily tails on the candles coinciding with the April lows. RSI(14) and MACD(12,26,9) are showing bullish crossover signs. The $VIX can be a bit of a tricky barometer to trade technically.

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Disclaimer: This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine ...

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