OVERVIEW
A CPI Market Melt Up?

Yesterday was a crucial first step in turning things around after the recent sell-off, and we have the PPI data to thank for that. U.S. producer prices increased less than expected in July, which is a positive sign. This cooling inflation strengthens the market’s belief that the Federal Reserve will be cutting rates soon.

As a result, the market rallied across the board, with several stocks breaking out and seeing strong follow-through. There's a noticeable shift in behavior, signaling that the tides are finally turning.

Today is going to be a big day—one that could confirm whether it’s time to get excited and start aggressively looking for positions, or if yesterday’s positive PPI data was just a temporary boost.

The CPI data, coming out an hour before the market opens, is much more important. Inflation in the U.S., as measured by the CPI, is expected to increase at an annual rate of 2.9% in July, slightly down from the 3% we saw in June. Core CPI inflation, which excludes volatile food and energy prices, is also expected to dip slightly to 3.2% from 3.3%.

According to analysts at TD Securities, core CPI prices are expected to stay mostly in check in July, and therefore we are optimistic that we should get a continuation day higher on even greater volume today.

What does this mean for you?

You have reason to be optimistic. The market strength we saw yesterday wouldn’t have happened if people were expecting bad news from today’s CPI report. While we can’t predict exactly how today’s session will play out, if the CPI and inflation continue the trend we’ve seen over the last few months, we should see CPI numbers continue to decrease.

This is significant because, for the past two weeks, global equity markets have been jittery, fearing that the economy might be weaker than we thought. The market is extremely sensitive to any macroeconomic news right now, with everyone looking for a reason to either worry or be hopeful. A strong CPI report would boost investor confidence and encourage large institutions to start pouring back into the equities market.

Nasdaq

The Nasdaq had a very strong day yesterday, breaking above both the 10-day and 20-day EMAs on high buying pressure. It’s now gearing up to test its 50-day EMA for the first time in August.

What’s even more impressive is that the Nasdaq broke through a key descending resistance level early in the session. The QQQ opened above the $453 mark, and we saw four straight hours of upward momentum, pushing toward its descending 200-EMA on the hourly chart. Now, the big question is whether it can push past this level or if it will face resistance and pull back.

The $463 level is a critical point to watch. If the CPI data is positive, we could see it break through this level. However, if the report disappoints, we might experience a significant gap down, potentially dropping back to the hourly point of control (POC) and filling the gap between $454 and $451.

From a technical standpoint, we’re leaning more bullish than bearish. Yesterday's rally came with very high volume, which is unusual for a simple technical bounce. This suggests that large institutions are betting big on a positive CPI report and a market rally.

S&P Midcap 400

The midcaps had a strong session yesterday as well, climbing above their daily 10-EMA and finding support at their POC level of $535. This level was tested intraday and successfully propelled the MDY back up on high volume.

Looking ahead, the midcaps have a bright future, assuming the CPI data is positive. From a technical standpoint, the visible range volume profile (VRVP) shows something interesting: there’s very little volume between the current $540 level and the next major supply zone at $553. This means there’s a lot of open space for the MDY to move up quickly if momentum continues.

If the MDY can break above its daily 20- and 50-EMAs, which are both sitting around $542, we could see a sharp and volatile rally of about +2.5% up to that $553 supply level, where some resistance and choppiness might kick in.

Russell 2000

The small caps are following in the footsteps of their bigger MDY counterpart, though they’re slightly lagging in their push through the daily 10-EMA, which is now being overtaken in premarket trading at $208.50.

As you can see on the daily chart, the IWM broke out of its small volatility contraction pattern, something we had anticipated.

Today could be a big day for small caps. There’s a large gap directly above the current level between $211 and $215 that needs to be filled. If the CPI report is positive, we could see the IWM rally up around +3% to fill this volume gap.

DAILY FOCUS
Go Big, Or Go Home

By the end of today’s session, we’re either going to kick off a multi-week to multi-month rally, or the market will sell off again, leaving us to wait for another opportunity to rebase.

Here’s the deal: there are two potential scenarios, and here’s how we plan to approach each.

Scenario 1: Positive CPI Reaction

If the market reacts positively to the CPI data and rallies, our focus will be on taking 1R positions in stocks that have formed strong VCP (Volatility Contraction Pattern) bases and demonstrated the greatest relative strength.

We’ll prioritize accumulating positions in the highest-quality stocks, ranking them by their ADR % (Average Daily Range). Trading stocks with the highest ADR % gives us the best chance of capturing significant moves.

Why This Matters

If today’s market reaction is indeed positive, this is one of the lowest-risk entries you can get, offering the highest risk-to-reward opportunities in stocks with strong setups. As we’ve discussed in our beginner’s course, understanding stage analysis and the cycle of price action is crucial. In this scenario, we’ll be buying stocks that are transitioning from stage 1 (accumulation) to stage 2 (uptrend). This stage 2 uptrend typically lasts around 30.7 days and provides multiple opportunities to add to positions.

Getting a solid entry today on these top setups allows you to average up as the stock trends higher, while moving your stop loss up accordingly. This way, you’re always in a position to protect your capital (at 0R) while riding the stock’s momentum.

Scenario 2: Negative CPI Reaction

In this case, the best move is to sit in cash. It’s as simple as that.

This is why it was important not to aggressively buy positions yesterday; doing so could set you up for a shakeout if the CPI data disappoints.

We won’t be looking to enter short positions if the CPI print is bad. It’s generally harder to make money on the downside than the upside. Instead, the smartest play is to keep updating your watchlist with stocks that maintain strong bases and show high relative strength. The uptrend will eventually return, and you’ll be ready when it does.

If this scenario plays out, you’ll likely know it right away, as the market will likely sink premarket.

WATCHLIST
Go Long On These If CPI Is Strong

EVGO: EVgo Inc

• EVGO is tightening up nicely in its volatility contraction pattern (VCP) and has one of the best-looking bases among the stocks on our high relative strength watchlist.

• The company has achieved over 200% annual revenue growth from last year and is a volatile, high-ADR (11%) small cap. This means it can make significant moves, potentially +100-200%, in just a few weeks.

• If we see a strong positive reaction to the CPI and EVGO breaks above $3.82, we’ll be looking to take a full-sized long position.

REAX: The Real Brokerage

• REAX is another high-ADR growth stock featured in our “Three Stocks to Bet Big On” E-Book (available for free in our referral program). It stands out due to its impressive momentum, solid fundamental growth, and exceptional growth potential.

• The Real Brokerage is currently forming a multi-week base and is setting up for a potential breakout. If REAX sees high volume and breaks above $6 today, we’ll be looking to take a long position.