- Better-than-expected CPI report shows inflation may have peaked.
- A Double Bottom pattern forms on the Daily chart.
- Bull, Bear, and Crab trade scenarios.
The CPI Report
The November Consumer Price Index (CPI) Report released on Thursday shows that inflation may have peaked. Prices increased 0.4% month-on-month, and prices less food and energy rose 0.3%. These were low enough to cause the year-over-year inflation rate to fall to 7.7%. The bullish report has given rise to a few formations we can analyze on the charts, one of which is the recent double Bottom on the daily.
Double Bottom
The double Bottom is a technical pattern all analysts should be familiar with because of its high reliability. The pattern essentially tells us that sellers have not been strong enough to continue the bearish move; thus, buyers take over and push the price higher.
The Double Bottom on the Daily is particularly strong because of the powerful 7.2% candle we saw from yesterday’s session. The price is currently trading within the resistance zone at $11,729. A break above that zone could lead to a move higher, with potential targets of $12,813. This will, however, depend on how the Fed reacts to this slowdown in inflation. The next meeting in December will give the market better guidance moving forward.
Three Potential Outlooks
From here, there are three potential outcomes, and it’s up to the trader to decide which they think has a higher likelihood of occurring:
Bull Case
If the Fed decides to pivot, indicating their intent to slow down on interest rate hikes throughout next, this could send NQ prices higher and the US Dollar lower.
Crab Case (Indecison)
The market could remain undecided on the future until the FED minutes in December. NQ could stay within the range of 10,634.75 and $11,729 until an eventual price break occurs.
Bear Case
Suppose the market sees the CPI report as just a slight relief in rampant inflation that is not under control, and the Fed confirms this by continuing with their intended path into next year; we could eventually see lower prices in NQ.
Summary
At the moment, the market is being driven purely by fundamentals. We can use technicals to time our entries and search for potential reversal points. It will be interesting to see how the market reacts moving forward and how the FED treats the recent CPI data.
