Happy Friday, Evolvers!

Before anything, let’s discuss what we learned from this week’s major economic data — the consumer price index (CPI) and the producer price index (PPI).

On Wednesday, the CPI exhibited a 0.1% month-over-month (and 5% year-over-year) rise in consumer prices…

The report was cooler than the 0.2% and 5.1% estimates, respectively. It proves that the Fed’s interest rate hikes are doing their job of lowering inflation. 

The CPI was followed by the PPI on Thursday, which showed annualized producer prices plummeting to 2.7% (0.5% on a month-to-month basis) — the lowest level for the key inflation gauge since January 2021.

In addition to the PPI, Thursday brought us the Federal Open Market Committee (FOMC) minutes, which had both positive and negative commentary…

Negatively, the Fed implied that it expects the regional banking crisis to cause a mild recession in 2023. 

Positively, the Fed was optimistic about the further cooling of inflation, saying “Reflecting the effects of less projected tightness in product and labor markets, core inflation was forecast to slow sharply next year.” 

This data illustrated that we’re headed in the right direction on the inflation front, but the market response has been mixed so far…

The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) chopped around on Wednesday following the CPI print, closing red. Then, on Thursday, the index surged more than 1.5% as traders fully digested the positive news. 

But enough about macroeconomics. It’s Friday, and that means it’s time for our Q&A!

Keep reading and I’ll answer your questions…

“Are you adjusting your game plan at all based on the CPI and PPI data?”

I’m primarily a technical trader. I trade based on chart patterns as opposed to fundamentals or economic data.

So, while the information from the Fed won’t drastically affect my overall strategy, I will use it to gauge the possibilities of near-term market direction.

More than the data itself, I use the market reaction to the Fed as a guide in my trading.

As I mentioned earlier, the reaction was initially mixed, but Thursday showed some serious bullish momentum.

Bottom line: Don’t fight the trend. The trend is your friend!

Again, it comes down to the charts. I don’t care as much about what the Fed says as I do about how the market digests the news.

Now, I believe the overall focus of traders will shift to corporate earnings, specifically that of the banks…

Next week is the biggest week of the year for bank earnings. 

You should be watching these reports closely as the earnings picture from these major financial players could materially affect the major indexes (and the market at large).

“What are your thoughts on Nvidia Corporation (NASDAQ: NVDA)? I’m considering buying puts…”

I’ll say this, you have the right idea when it comes to identifying overextended charts!

NVDA is the most overbought blue-chip stock in the entire market — up 130%+ in the past six months.

But over the past week, the semiconductor giant has finally started to show signs of slowing down.

After hitting strong resistance at $277, NVDA has failed to exceed the level, leading me to believe a near-term top could be in.

Spoiler alert: Last week, I traded puts on NVDA, seeing topping signals when it failed to break $277. And now, I’m actually in more NVDA puts that I haven’t alerted (more on that next week)…

If you do decide to enter NVDA puts, try to buy your contracts into a bounce.

Too often, I see traders buy puts on a downtrend, chasing the downside. But your risk/reward will be better if you stay patient and load your puts into a modest bounce.

All in all, I think your idea is solid. NVDA is primed for some near-term downside, which is why I’ve been trading the puts myself.

That said, don’t just take it from me. You must do your own due diligence and trust your conviction before entering any trades.

Final Thoughts

Have a great weekend, Evolvers!

Study hard and get ready for a major week of bank earnings next week.

I’ll talk to you on Monday!