Core CPI unchanged , Inflationary Pressures Moderating --> Gap Up --> $640 profits
5 minutes Nasdaq 100 Emini Futures
How's it going? Today price gapped up by almost 15 points due to better than expected CPI data. While what do we mean by better than expected? A bunch of economists expected the november CPI to increase by 0.2% but actual data turns out that the Novement CPI is unchanged. If you remembered economics 101, CPI is a measure of inflation, higher CPI means higher inflation, and we know inflation is the enemy of the FED, if inflation increases the FED keeps on hiking rate. They have been talking about a soft-landing and to curb inflationary pressures.. Hence, this lower CPI number is actually a good sign that inflation is under control and that the FED engineered soft-landing is happening..
Mumbo jumbo to you? Well, that's just the theorectical background for you to appreciate... Traders don't really need that.. and we don't act on that info alone.. All we have to know is,,, gap up due to some better than expected data,,, and IS THIS GAP GOING TO CLOSE? OR IS IT GOING TO BE A RUNAWAY GAP? ya, thats all we need to know...
There was a knee jerk reaction to close the gap... I didn't enter... and price bounced back... At 10:40, I finally decide to short 1 contract at 1840, after confirming weakness in price action and a downturn in stochastics... risk-reward is good, my stop loss is at 1845, above the high of the day and reward,, you know, its the whole distance of the gap of around 15 points.. at 12:00, I shorted another 2 contracts at 1838.... and this time round, it really went plunging... ya, it's a good feeling to know that you are right immediately after shorting it.... Finally at 13:40, I decided to get out at 1828. Although price did not close the gap,, it touched the moving average and robounced.... I am not going to risk my profits for those additional 2 points until it closes the gap... I exited and reaped $640 profits... enough for the day!
This morning, there is bullish news to help. The November core CPI was unchanged. That was lower than the expected 0.2% gain, and brought the year-over-year increase down to 2.6%. It follows a 0.1% increase in October and three 0.2% increases before that. There were a couple 0.3% gains prior to that. So, the trend is clearly good. Inflationary pressures are moderating.
The component breakdown shows widespread weakness. The very low number was helped by large declines in apparel and auto prices that won't continue. But telephone services, computers, recreation, and medical care also showed lower inflation trends. The owner's equivalent rent jumped another 0.3%, but even that wasn't able to offset the broad weakness.
The Fed's soft landing is working. Inflation is easing even while economic growth remains decent (apart from housing). This will fuel speculation that the Fed will cut rates in early 2007. The market may be getting ahead of itself in that regard, but for now, the implications are bullish.
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