The market’s next big catalyst is right around the corner.
And it affects everyone…
This upcoming catalyst will reach everyone in America. And by association, even some international players.
For years, an arm of the U.S. government has fought to keep this from happening.
But on May 12, it could all come crashing down…
Whether you’re a trader, investor, or an unassuming citizen, get ready for this catalyst.
What’s Happening on May 12
The April Consumer Price Index (CPI) drops this coming Tuesday, May 12.
And it’s on track to be the most-watched inflation report of the year thus far…
March CPI came in hot at 3.3%, the highest since April 2024. Gasoline alone surged 21.2% for the month, accounting for nearly three-quarters of the headline jump.
In case you weren’t aware, the Iran war sent energy costs through the roof in March.
But core CPI, which strips out food and energy, only rose 0.2% for the month.
Translation: underlying inflation looked tame. That’s a glimmer of hope for the announcement set for May 12.
Plus, a ceasefire between the U.S. and Iran has cooled energy prices throughout April. The data should reflect that relief. But there’s no guarantee.
If inflation cools, the Fed can consider easing interest rates. If it doesn’t, the inflation narrative stays ugly heading into Kevin Warsh’s confirmation as the new Fed chair.
Both outcomes have the potential to move the market in a BIG way.
Here’s how we find trade setups.
The Fed Backdrop Makes This Even Bigger
Jerome Powell just held his last meeting as chair. Rates stayed in the 3.5-3.75% range, announced on April 29, for the third straight meeting.
There were four dissents on the committee. And it’s the first time that’s happened since October of 1992.
The Fed is split right down the middle, and Warsh steps in on May 15, three days after the coming CPI print.
This number lands at the exact moment the most powerful institution in global finance is changing hands.
If April CPI cools, the rate-cut crowd gets ammunition for Warsh’s first meeting. If it stays hot, the hawks dig in, and Warsh walks into a brawl.
The market knows all of this. And key indexes are about to get whipped around.
The Three Charts I’m Watching
A catalyst this large has the potential to move the entire market.
So, instead of focusing on one stock, I’m watching three major indexes:
- S&P 500 ETF Trust (NYSE: SPY)
- Invesco QQQ Trust (NASDAQ: QQQ)
- iShares Russell 2000 Index Fund (NYSE: IWM)
The SPY and the QQQ are both tech-leaning indexes. And considering the volatility from tech stocks this year, it’s logical to think the inflation announcement could cause additional volatility.
I’m also watching the IWM because it focuses on small-cap stocks, which are inherently volatile.
As traders, we need volatility to make worthwhile trades. When prices spike and crash harder, there’s more room for us to snag a large percentage.
When the CPI prints, all three of these indexes will move
The question is how much, and in which direction.
How To Trade It
There are two ways to approach a setup like this.
The first is to trade the volatility before the announcement.
As the CPI approaches, options premiums on the SPY, QQQ, and IWM expand. The price action will grow choppier as the smart money starts to position and the dumb money panics. And the chart will show us that tension.
Pay attention to intraday support and resistance in the sessions leading up to May 12. Early directional moves often hint at where the big players are leaning.
The second approach is to trade the volatility after the announcement.
This is where I find some of my cleanest setups. The ETFs whip in the first hour after the data drops, but once the dust settles, a direction emerges. That’s when the chart tells me where it wants to go.
Remember, a 1% move in the SPY can translate into a 30-50%+ move on a short-dated options contract. So don’t worry about the seemingly small percent change on the chart.
- Keep your position manageable.
- Know what you’re risking before you enter.
- Don’t fall in love with a thesis on a number that isn’t public yet.
The April CPI hits on May 12 at 8:30 a.m. ET. The market is already showing its excitement.
Whichever direction it moves, the price action will be volatile.
Don’t be the trader who watches this catalyst from the sidelines, then stares at the chart at the end of the week, wishing they’d paid attention earlier.
Pay attention now! These trade setups are forming.
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
