Everyone (and I mean everyone) has been talking about inflation. We finally got the CPI print on Thursday: 0.6% vs. 0.4% expected! The S&P 500 didn’t seem to care, though. Record highs! What’s next?

Inflation is real, folks. Two monthly prints in a row now, with the most recent June print showing the largest increases in used cars/trucks, transportation services, fuel oil, and apparel. Initially, the CPI data release was sold in futures trading at 8:30 AM on Thursday, but price action quickly reversed to the upside. This price action stuck out to me. Markets do not always react as expected when data releases come out. In a bull market like this, sometimes the data doesn’t matter. This price action tells us a story.

Figure 1 - SPDR S&P 500 ETF February 13, 2021, 8:45 PM - June 11, 2021, Daily Candles Source stockcharts.com

Notice the long “tail” or “wick” on the 8:30 AM candle above. The initial reaction was to sell the big CPI number, but it was quickly bought and ended up just being liquidity for the long/buy-side to gobble up and take the market higher. The retest that occurred hours later held up, and a new range was established for the remainder of the week.

The S&P 500 closed at an all-time closing high level on Friday.

What can this tell us? This market wants to move higher. Perhaps the higher inflation trickles into stocks as well; if used trucks cost more, couldn’t shares of stocks cost more too? It is plausible and also somewhat concerning. Higher inflation should not be construed as a bullish event, but as we know, markets can remain irrational - and for extended periods.

Drilling down to the intraday candles, we can see the price action that occurred when the CPI data was released. The September S&P 500 Futures quickly moved lower on the release, but within minutes, snapped back and reversed to the upside. The price area was retested hours later (see below), and this area held up very well as support.

Figure 2 - September Emini S&P 500 Futures June 9, 2021, 8:45 PM - June 11, 2021, 15-minute Candles Source tradingview.com

So, we have a bit of a conundrum on our hands in the US equity indices, in my opinion. We have the S&P 500 closing at all-time highs on Friday. The breakout (if you want to call it that) is a bit anemic as of now, and the other major indices have yet to close at all-time highs.

The Week Ahead

The major event this week: the FOMC meeting on June 15-16, with the Fed statement coming out on Wednesday at 2:00 PM ET. Prior to the Fed statement, we do have PPI and Retail Sales data coming out on Tuesday at 8:30 AM ET. The retail sales data will give us some additional insight into the US consumer, and the PPI is known to be a leading indicator of consumer inflation.

While Retail Sales and PPI could provide a spat of movement in the indices, I am expecting a quiet week leading up to the Fed decision on Wednesday afternoon. This type of quiet trade has been the prevailing theme lately; last week was quiet leading up to CPI, and the week prior was quiet leading up to Non-Farm Payrolls. Both of those numbers were anything but bullish by the way, but here we are at all-time highs in the S&P 500.

What is Working

While a pullback in the S&P 500 to the 50-day moving average would catch my attention for a potential long entry, there seem to be better places to focus on at this moment. The US infrastructure plays have been playing out well, even with the back and forth negotiations by the two parties.

ERTH Invesco MSCI Sustainable Future ETF has been working well since we identified it for a long entry near its 200-day moving average in our May 10th publication, and it is still in the middle of its 2021 range.

Figure 3 - Invesco MSCI Sustainable Future ETF (ERTH) Daily Candles October 21, 2020 - June 11, 2021. Source stockcharts.com

I think that this name has legs over the long run given the current US administration and the fact that ERTH seeks to track the investment results of MSCI Global Environment Select Index. You can read more about ERTH here. If we get a pullback, I will be monitoring the 50-day Moving average level. I do think there is still time to get on board this one, and the holding period could be extended. Remember to monitor the 50-day moving average level, as it changes each day!

To sum up the current viewpoint and opinion:

I have BUY opinions for:

• iShares Trust Russell 2000 ETF (IWM) for an index reconstitution trade. At this time, I would be looking to be long and then exiting upon the actual reconstituted index going into place on June 28, 2021. Buy the rumor, sell the fact type of trade. Buy Pullbacks. For equity-bearish folks, see the IWM/SPY spread idea in the May 27th publication. Always use a stop loss level that caters to your individual risk tolerance.
• Update: 06/13: The IWM tacked on 1.06% in Friday’s session to close at 231.70. It is still well above the $223.36 level when initiating coverage. Opinion: stay long. I think there is still time to get on board here. See the May 27th publication.
• Defiance Quantum ETF (QTUM) between $44.00 - $47.25. Update 05/27: I will now raise my buy idea zone upwards to $47.60. Look for pullbacks for entries. Update 06/13: QTUM closed at $49.11 in Friday’s session. In case you missed this one, I think there is still time to get on board and will raise the buy idea zone to $48.50 - $49.00. It looks like it wants to break out of its range soon. Always use a stop loss level that caters to your individual risk tolerance.
• Amplify Transformational Data Sharing ETF (BLOK) between the 200-day moving average and $40.00 200-Day Moving Average is currently $39.37. BLOK has a history of high volatility, so proceed with caution. Always use a stop loss level that caters to your individual risk tolerance. Update 06/13: Patience still. There is no rush to chase blockchain stocks right now. Wait for $40.00 to the 200-Day moving average. Monitoring.
• Invesco MSCI Sustainable Future ETF (ERTH) between $67.76 - $70.82. Always use a stop loss level that caters to your individual risk tolerance. Update 06/13: ERTH closed at $76.27 on Friday. Hold longs. Chugging along. If you missed this one, let’s see if we can get a pullback to the 50-day moving average, which currently sits at $73.99.
• Invesco Exchange-Traded Fund Trust - S&P SmallCap 600 Pure Value ETF (RZV) at the 50-day moving average. Patience and wait for the pullback. Always use a stop loss level that caters to your individual risk tolerance. Update 06/10: RZV 50-day MA is 92.18 as of the close Friday The last trade on Friday was $98.50. Monitoring.
• iShares Global Timber & Forestry ETF (WOOD) Initial buy idea zone between $79.07 and the 200-day moving average ($79.51 as of 06/11 close). Update: Patience and wait for the pullback. Monitoring. Always use a stop loss level that caters to your individual risk tolerance.
• SPDR S&P 500 ETF (SPY) between $412.26 (61.8% Fibonacci retracement level above) and the 50-day moving average ($415.72 as of the close on June 11th). Always use a stop loss level that caters to your individual risk tolerance.

I have SELL opinions for:

NONE

I have a HOLD opinion for:

• First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID). GRID has traded through our idea range of between $86.91 and $88.17. Update 06/13: GRID closed at $91.72 yesterday. Opinion: hold longs.
• Always use a stop loss level that caters to your individual risk tolerance.

Have a great week ahead, folks. Keep an eye on those key moving averages that we are following. Be patient and thanks for reading today’s update!

Thank you,

Rafael Zorabedian
Stock Trading Strategist