E-mini S&P (September) / E-mini NQ (September)

S&P, last week's close: Settled 5370.25, up 22.00 on Friday and down 5.75 on the weekNQ, last week's close: Settled at 18,616.00, up 90.75 on Friday and 59.75 on the week

E-mini S&P futures in the chart above. A rally out of VIX spikes to 50 in August 2015 and February 2018, but beware of a retest.

E-mini S&P (September) / E-mini NQ (September)

S&P, last week’s close: Settled 5370.25, up 22.00 on Friday and down 5.75 on the week

NQ, last week’s close: Settled at 18,616.00, up 90.75 on Friday and 59.75 on the week

Inflation and the consumer will be front and center this week, but we also see equally important anecdotes driving markets, which I will get to next. Today at 10:00 am CT, the NY Fed will release 1-year Consumer Inflation Expectations. Fed Chair Powell has called inflation expectations a self-fulfilling prophecy. Think about it: if everyone expects gas prices to be higher next week, they will be filling the car this week and thus driving prices higher. Tomorrow morning, we will get the July PPI report before CPI Wednesday. Remember, producer prices are a leading indicator of consumer prices. The July Retail Sales report and earnings from Home Depot will also be released tomorrow morning. Walmart, the world’s largest retailer, is due Thursday.

Markets will ebb and flow in response to this data, but we do believe last Monday’s volatility event laid the groundwork for higher prices in the weeks to come, barring a severe escalation in geopolitical tensions. The Olympics’ closing ceremony was yesterday, and it is important to remember that only days after the 2022 Winter Olympics closed in China, Russia invaded Ukraine. Tensions are running hotter between Russia-Ukraine and the Middle East than in recent weeks. As for the volatility spike, last week, we compared the event to August 2015 and February 2018. Outside of the pandemic, these were the last two instances the VIX hit 50, and upon such, it also marked a low in the S&P. It is important to understand that after a significant rally in the weeks to come during both instances, we did see a retest into the range of the session in which the VIX hit 50. Are we in the clear? Certainly not. However, the VIX is now trading at 20, and upon volatility suppression, it is very reasonable to expect the market to drift higher, at minimum, at least for a trade.

E-mini S&P and E-mini NQ futures are extending their range higher ahead of the U.S. open. We are looking for the first 30-60 minutes after the bell to help define an acceptance of the higher range and usher in continued buying. We must see the E-mini S&P hold out above major three-star support at 5359.35-5366.50 and positively digest a retest into our Pivot and point of balance at 5370.25-5376, which aligns with settlement from August 2nd.