What to expect from Tuesday’s inflation readings and how to trade it

Free After-Hours Analysis: 

The S&P 500 added 1.1% Monday, continuing Friday’s bounce and putting the index back above 4,100 support.

Headlines haven’t changed in a meaningful way and that stability is allowing the market’s half-full mood to keep prices near multi-month highs.

I expected last week’s selling to stall and bounce fairly quickly because there wasn’t any real bite to last week’s selling. Which is exactly how it played out. As I wrote in Friday’s free blog post:

Friday’s session wasn’t all that bad…While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce. As I said Thursday evening, this was the [buyable] setup I was looking for.

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While some people scoff at a 1.1% gain, make that trade in a 3x ETF and now we’re looking at a 3.3% profit in a single session. It only takes a handful of sessions like that to have a very good year.

As for what comes next, just like there wasn’t a reason for stocks to tumble last week, there isn’t a reason for them to pop this week either. As quickly as last week’s selling stalled, expect the same to happen to this week’s rebound.

This is a choppy market and that means taking profits when we have them because holding a few hours too long is the difference between collecting worthwhile profits and watching a winning trade turn into a loser.

We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.

Buy the dips, sell the bounces, and repeat as many times as the market keeps throwing us these softball pitches.

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