If You’re Planning On Trading The CPI Number On Friday, Read This

February 20, 2004
Chris Curran

Stock
index futures opened Thursday’s session with an upside gap after some
positive earnings news and weaker-than-expected Jobless Claims. The size of the
gap and the weak closing PREM gave a good gap fade short off of 1158.25 and
after the Leading Indicators report was released early with no surprises, the
bleed continued to fill 1/2 of the gap. The upside reaction was capped by R1 at
1156 as price reversed and broke the session low amid a flurry of sell stops. A
low print and sharp bounce off the 1153 level sent the SPH into fast market
conditions, led by First Chicago on the buy side. The contract clawed its way
back up to the 1156 area before the noon release of the Philly Fed, which came
in lower-than-expected, led to another whipsaw down and back up. A failed test
of the high pushed the futures back into a whippy range. With the spurts of
volume we kept getting, the action overall just smelled of options expiration,
however, the market also wore a different hat today with the selling on good
news. At 3:30 ET, more rumors sprang up that the US dollar would be supported
and a couple of good-sized sell programs hit the market, sending the ES tumbling
through Wednesday’s close and hitting sell stops down to Wednesday’s session low
and the Weekly Pivot.

The March SP 500 futures closed
Thursday’s session with a loss of -4.00 points, and is close to erasing its
gains for the week. Volume in the ES was estimated at 645,000 contracts, which
was ahead of Wednesday’s pace, and above the daily average. Open interest
declined with Wednesday’s slide, indicating a lack of buyers more than any
aggressive selling, but we’ll want to watch the days ahead for any pattern to
develop. Looking at the daily chart, the ES posted a bearish engulfing line and
settled just above its 10-day MA support, with next support at its 20-day MA and
trend line at 1141. On an intraday basis, the contract filled and bounced off of
the gap fill from Tuesday’s open.

Friday’s options expiry brings
us the January Consumer Price Index at 8:30 am ET. Estimates are expecting a
0.3% increase, and a 0.1% increase in the core index. I’ll be looking for a
downside gap at the open, sideways slop throughout the morning, and then a
choppy grind higher in the afternoon.