We're in a Bullish Trend but Not What I'd Call a Forgiving Trend

The SPDR S&P 500 ETF (SPY) gave it a go on Monday, attempting to reach the quick $5 target on last week’s breakout from the bullish flag. We hit $433.88 intraday on Monday, finishing less than a dime off the day’s high. Bulls pushed as high as $434.28 after-hours.

Once again, the initial target is well within sight. While I’m not bearish on this market, I do understand the notion of what it means not to get greedy. As I discussed many times as of late, don’t hesitate to scale out of positions once a stock or an ETF gets close to a target. I’d rather take some off early than take it all off late.

We’re in a bullish trend but not what I’d call a forgiving trend outside of the biggest tech names.

I think a close below the 10-day exponential moving average (EMA) makes for a clear trailing stop for anyone long SPY. Conservative traders may use the 5-day EMA, especially if they’ve already taken profits. At this point, it should lock you in for a break-even trade or possibly a small gain. 

The markets and the Fed will get the opportunity to review the May Consumer Price Index and Core CPI data here on Tuesday morning, followed by the Producer Price Index and Core PPI tomorrow morning. Worse-than-expected results, higher inflation than anticipated, could spur the Fed to hike a quarter-point this week rather than waiting until July.

Terrible results could result in a hike this week and the odds of a hike in July increasing as well. I don’t see this as a likely outcome, but it’s worth considering once we see the numbers.

In-line results or better-than-expected numbers should give us a pause in June, with odds still above 50% for July. I don’t think the market easily will back off a July hike possibility. One month of great inflation data isn’t enough to erase the inflation trend of old and the leaning hawkish sentiment from the Fed.

After a week of quiet and before we get deep into the dog days of summer, things are about to get loud.