OVERVIEW
Watch The PPI Data: Boom Or Bust?

Today kicks off a crucial two-day stretch of economic data that could either trigger a quick rebound in the U.S. stock market or push it even lower. The first big report to watch is the Producer Price Index (PPI), which comes out an hour before the market opens. It’s expected to drop to 0.2%.

The PPI measures how much producers are charging for their goods and services, making it a key indicator of inflation at the production level. If the PPI comes in lower than expected, it will signal that inflation is continuing to cool off, which could boost market confidence and add more pressure on the Federal Reserve to consider lowering interest rates.

The market is already anticipating a significant rate cut in September, especially since recent sell-offs have been driven by concerns that the Fed’s tight monetary policy is hurting the labor market. Immediate action to lower rates is seen as critical.

However, if the PPI comes in higher than expected, it could throw a wrench in these expectations. A higher PPI would complicate the situation, making it less clear what the Fed will do next. And with the Consumer Price Index (CPI) also set to be released tomorrow, these next two days are more important for the market’s health than they might initially seem.

So, what does that mean for you?

Quite simply—everything. If the PPI report today comes in higher than expected and misses that 0.2% forecast, we will see a negative reaction in the market. This would only add to the confusion that’s already been brewing over the past week. And when the market is confused, it becomes uncertain, and when things are uncertain, this is the most dangerous environment for us traders.

In a market with no clear trend, no direction, and no solid understanding of the economy’s health, taking on risk is a fast track to losing money. While we’re hopeful about today and tomorrow’s PPI and CPI reports, the gravity of these data events means the odds aren’t exactly in your favor.

We will go into more detail in our pre-market focus plan shortly.

Nasdaq

The Nasdaq is at a critical crossroads right now. It could either break above the $454 resistance level, which has been blocking any upward movement for the past month, or it might drop below the 10-day EMA that it just barely managed to climb above in yesterday's session. If it falls below the 10-day EMA, the Nasdaq could continue its decline towards the 200-day EMA and the $435 level, potentially resulting in a -4% sell-off.

Volume has been unexpectedly drying up as volatility contracts, with many traders sitting on the sidelines, waiting to see how today and tomorrow’s data will influence the market direction.

The Visible Range Volume Profile (VRVP) shows a slight volume gap just above the current $451 zone. If strong news comes out today or tomorrow, this gap could help push the Nasdaq to break out of the descending broadening wedge it has been trading within for the past four weeks.

S&P Midcap 400

The midcaps are also setting up for a potential volatile move, either above or below the current price level. The Point of Control (POC) at $534 was almost held yesterday, but the MDY has now experienced four days of sideways consolidation. The index has been trading just below its daily 10-day EMA and within the large supply and demand zones on the Visible Range Volume Profile (VRVP) between $527 and $538.

This sideways consolidation is actually quite promising. Unlike the large tech stocks in the QQQ, which are struggling with clear directional trends, the midcaps are showing some balance.

Both buyers and sellers seem to be finding a middle ground, with neither side aggressively pushing the price away from this consolidation zone. This balance could set the stage for a more defined and therefore tradable move once the index breaks out of this range.

Russell 2000

The small caps have been forming their own volatility contraction pattern (VCP) over the past week, trading within a tight range between $204 and $207.

While the IWM (Russell 2000 ETF) doesn’t look particularly bullish right now, it’s showing signs that an explosive move could be on the horizon in the next few days. This kind of tight trading range and reduced volatility often precedes significant price movements, suggesting that small caps are building momentum for either a breakout or breakdown soon.

This setup isn’t new, but it’s important to note that the upcoming PPI and CPI reports are expected to continue the trend of cooling off inflation. This was one of the factors that initially boosted small caps. If inflation continues to ease, lower interest rates could significantly benefit smaller companies that rely on affordable borrowing costs to fund their operations. If the data supports this trend, the IWM could experience a more aggressive move compared to other capitalization groups.

DAILY FOCUS
We’re Less Bearish Than The Mainstream

If you’ve been following us for a while, you know that a contraction of volatility—where a stock’s trading range narrows and volume decreases—is like a spring being coiled and tightened. This is precisely what’s happening in the markets right now.

The narrow trading range and shrinking volume suggest that the market is gearing up for a significant move. Much like a spring ready to snap, this setup indicates that a breakout or breakdown is imminent.

Whether the move is upward or downward will depend on two key factors:

1. How the actual data compares to analyst expectations

2. The response of large institutions

The second point is actually more crucial than the first. As individual traders, we don’t move the market—big, multi-billion-dollar hedge funds do. Our role is to track and respond to their accumulation or distribution patterns in individual stocks.

So, keep a close eye on the PPI report today and watch the volume closely. If we see a breakout across major indices on high volume, it’s still wise to hold off on entering a position immediately.

In this bullish scenario, tomorrow will likely offer a better entry point. Today will give us a sense of the trend, and tomorrow’s reaction to the CPI will serve as confirmation.

The key is not to rush. Run your scans and observe if stocks start making moves higher with follow-through, similar to what we saw with $PSNL yesterday. Patience and careful observation will be crucial.

We’ll be back tomorrow morning with a breakdown of today’s analysis, and on a bullish reaction we are going to go into detail on the entries we will be taking.

Don’t get too bearish just yet folks, there are set-ups in the market just ready to blow and make us all some profit.

WATCHLIST
The Best Looking Set-Ups

FTAI: FTAI Aviation Ltd.

• Aerospace manufacturer FTAI has demonstrated impressive resilience over the past year, consistently marching along the daily 20-EMA and forming a daily flag pattern in the last month.

• While FTAI might not be the most thrilling stock—lacking those dramatic +50% moves in just days—it operates in a solid and stable sector.

CVNA: Carvana Co.

• CVNA had another inside day yesterday, continuing its ever-tightening range after a strong earnings report late last month.

• The stock has shown resilience by holding above its 20-EMA and establishing a series of higher lows over the last four sessions. During this period, volume has significantly dried up.

• If the PPI and/or CPI reports have a solid reaction, and CVNA breaks above $138.50, it could quickly propel the stock towards $200 within a few weeks.