The Return of Rationality?

Thoughts Ahead of CPI

When markets rip, most funds celebrate matching the index. Yesterday, while SPX closed up an impressive 3.26%, my high-conviction trades rewarded… for once, behind the scenes (not sharing it with paid subscribers), I pushed a large NQ long, which helped me close up on the day +9%. That's not beginner's luck – it's a continuation of my momentum, just 33bps shy of my April 9th performance.

That ES long I entered at 5630? Still holding as we hit 5840. Those 5750 calls expiring today that I paid 17.9 for? Now worth 76 – and I'm still holding 40% of the position (trimmed some at 90 and 99).

My recent tactical trades continue to deliver:

• DKNG: Entered at 34.36, now at 37.93

• CRDO: Bought at 47.45, currently trading at 55.23

• JXN: Exited yesterday at 89.37 for a 16% gain

Meanwhile, that GOOGL 150P for 6/20 that I wrote at 6 continues to work in our favour - LTP 2.27.

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Why do I expect a CPI print down the fairway?

Well it’s US PGA week, duh.

Looking at the data carefully, I'm expecting core CPI to come in around 0.3% MoM - right in line with consensus. Here's my reasoning:

• Housing's contribution to CPI is finally moderating after lagging actual market conditions by nearly a year. The shelter component, which makes up roughly a third of the index, has likely peaked in its YoY contribution.

• While everyone's fixated on tariffs, they're missing that the services side of the inflation equation is showing consistent moderation.

• Medical care services have been a persistent drag on inflation for nearly 18 months now, and the BLS methodology will likely amplify this effect in today's print.

In my opinion equities will rally regardless due to positioning and several fundamental reasons:

• Any downside surprise would only accelerate the risk-on sentiment as it would give the Fed more flexibility

• The risk premium built into equities over the past month was excessive, and we're only in the early stages of unwinding it.

• According to GS CTA positioning is a 3.5/10 - considering these are trend followers could we say the rally isn’t even half way yet?

  • As I said yesterday, no one truly owns this market. Those who didn’t buy lower down are being stubborn as they don’t want to be forced to buy up here.

    • Wishes don’t usually come true when it comes to markets, those wanting a dip to buy got one in April and shunned it.

• If inflation surprises to the upside, most will see through it as they need to see a trend of higher prints before being concerned.

I'm maintaining my ES long from 5630 (now 5840) and still holding 40% of those 5750 calls expiring today (paid 17.9, now 76). My conviction remains high for several reasons:

• Economic fundamentals haven't materially changed despite all the market volatility

• Sentiment indicators had reached extreme pessimism levels, setting up the perfect contrarian entry point

• The rapid snapback in tech stocks confirms my thesis that the selloff was overdone

• Tariffs were noise all along, as I said - nothing has changed (for now, anyway)

I believe the path forward is quite clear and that is that markets continue higher regardless of minor CPI deviations, and I think I am well positioned to capitalise.

In all honesty, if you were looking to put a trade on ahead of CPI, the 0DTE SPX straddle trades for 73bps at 43 as I finish writing this. That is cheap and a buy IMO. I will be putting it on. Doesn’t need to be huge, even if it’s just 10bps of NAV.

Have a great day,

Fed