To The Moon

Stocks on Wall Street and in Europe earlier rallied after data showed cooler-than-expected U.S. headline inflation in March, raising hopes the Fed could pause monetary tightening following a 25-basis-point rate hike next month.

But inflation is still running well above the Fed's 2% target, causing market angst as investors try to assess when the U.S. central bank might pause its hiking campaign to slow inflation.

Double whammy for everybody

"Right now the conversation is all about when the Fed starts to move in a different direction," said Johan Grahn, head ETF market strategist at Allianz (ETR:ALVG) Investment Management in Minneapolis.

"I don't think the Fed will move until it's painful enough that people are going to shy away from placing their chips on the equity market," he said.

Anthony Saglimbene, chief market strategist at Ameriprise Financial (NYSE:AMP) in Troy, Michigan, said the CPI data confirms that inflation trends are moving in the right direction.

"But from the market's perspective, it might be getting ahead of itself because I don't think the Fed will be cutting rates this year," Saglimbene said of investor sentiment.

Money markets initially trimmed expectations for a Fed rate hike in May, pricing in a 65.2% chance of a 25-basis-point move, CME Group's (NASDAQ:CME) FedWatch Tool showed. But the probability of a hike in May later rose to above 70% before paring some gains.

Markets still are pricing the Fed to cut its target rate to 4.336% by December, slightly less than the day before, as the economy slows and potentially enters a recession.

With core CPI, which excludes volatile food and energy components, rising 5.6% after a 5.5% rise in February, markets had been leaning toward further tightening.

Trade #1

Trade #2

Trade #3

SPY broke the trend line after the FOMC minutes revealed that officials are in favour of further rate hikes during the March meeting.

Bulls broke above 411 at open after the bullish numbers from CPI but unable to close above it. It looked really good until it broke under the trend line for the bears to return into control with the sharp selling post FOMC.

Time for the test today!

• 408 is the neck line for a possible double top which we closed under at the end of the day.

• 9/20 have been broken.

• Target now goes down to 405 with the bull gap right under which can act as support.

• 404-405 range is a strong support with multiple confluences there to support the price.

• 405 is the gap to support the market above the 9/20 EMAs or the bull shall take a nap.

⚠️ Trading Tips: Looking at calls above 409 and puts under 406.85 on Thursday. Be ready for another move for Jobless claims and PPI numbers at 8:30am. Let’s bank!

Options trade summary

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