Yes, We Have No Inflation 1/15/25

Key Market Reaction Observations:

1. Chart Analysis:
   • The ES futures chart shows a decisive bullish breakout coinciding with the CPI release. This reflects a strong market reaction, likely driven by the perception that inflation remains under control, reducing the urgency for aggressive Federal Reserve rate hikes.
   • The price sharply broke above several resistance levels, supported by heavy buying momentum. The alignment of technical factors (such as moving averages and prior resistance zones) adds credibility to this rally.
2. Momentum Indicators:
   • Indicators at the bottom of the chart, like the MACD and True Strength Index, are showing sharp upward movement, indicating strong positive momentum. However, the rapid ascent suggests overbought conditions may emerge shortly.
3. Contextual Factors:
   • While energy and gasoline prices contributed to the CPI increase, the moderation in core inflation might be viewed positively by the market, easing concerns about tighter monetary policy.

Implications:

• Short-Term Outlook: The breakout above prior resistance zones may fuel continued bullish momentum in the near term. Traders will watch for follow-through buying or potential consolidation at higher levels.
• Mid-Term Caution: Despite the bullish response, energy price volatility and rising shelter costs could reignite inflationary concerns. This might cap the rally if economic data doesn’t confirm a continued cooling of core inflation.
• Market Strategy:
  • Bulls may find opportunities by riding this momentum, focusing on support from prior resistance levels to manage risk.
  • Bears could watch for signs of exhaustion in the rally, especially if the price fails to sustain above key breakout levels.

This market response reflects a balancing act between optimism around moderating inflation and caution about potential risks in energy-driven inflation spikes. As always, sustained price action in subsequent sessions will be critical for confirming the broader trend.