To The Moon

Market Reaction To Hot Inflation Data

So on Thursday the market initially reacted badly on the PPI data that came out and disappoing bank earnings, and was down more than 1% from the opening bell within the first half an hour. However it managed to rally throughout the day with buyers stepping in on attractive prices. 

From the daily chart of the S&P 500 $S&P 500(.SPX)$a green candlestick with a long wick indicates that there was selling pressure but ultimately a strong buying pressure drove the price back up and managed to close above the open. 

Risk On is Back as Nasdaq Closes Up 0.34%

The Nasdaq $NASDAQ 100(NDX)$in fact was much stronger and closed 0.34% above the previous day's close. As the Nasdaq is more tech heavy, it indicates that risk on was back in play.

Comments from two of the Federal Reserve's most hawkish policymakers on Thursday favoured a 75 bp hike for July's meeting, and not the bigger 100 bp hike that traders was pricing in after a hot inflation report on Wednesday. The remarks from Fed Governor Christopher Waller and St. Louis Fed President James Bullard managed to sink in and the markets swung around quickly. The probability of a 100 bp hike has now reduced to 42.8% according to theCME FedWatch Tool.

Options Expiration on July 15

Options expiration is a key for every third Friday of the month. Current market sentiment forthe SPY $SPDR S&P 500 ETF Trust(SPY)$ is still bearish with Put-Call Ratio 1.65. A lot of ours are sitting at 370 and 380 levels, while thehighest calls sit at 390. Maximum pain currently sits at $386, meaning that if the S&P closesat that level on Friday, it would deal maximum pain and make a lot of options expire worthless. Wall Street tends to do wild things and inflict pain on retail traders, where statiscally only 70%-80% of retail traders who deal with options are profitable. 

It will be interesting to see if the market ends up closing closer to 3900 on the S&P 500 on Friday.