Selling SPX if US inflation exceeds forecasts

Traders are eagerly anticipating today’s release of US inflation statistics for August. If the Consumer Price Index (CPI) exceeds expectations, the Federal Reserve (Fed) could reconsider its plan for a rate cut at the September meeting.

The CPI report has a category called “Essential Services” that may take investors by surprise. It includes housing, transportation, and health sectors but excludes energy to provide a more stable picture of underlying inflationary trends. Right now, there is a risk that the average annual rate of price growth for essential services may accelerate compared to the beginning of the year. From February to May, the average CPI increase was 0.2%, with an annual rate near 2.4%. A monthly reading of 0.3% in August would raise the three-month summer average to 0.3% and push the year-on-year figure up to 3.6%.

The service sector remains the largest part of the economy. It accounts for the bulk of the CPI and is more strongly correlated with wage statistics. If overall or core inflation readings come in higher than expected, investors may revise their forecasts for how aggressively the Fed can ease rates. The immediate market reaction is likely to be negative, with potentially high volatility.

From a technical perspective, the S&P 500 (SPX) index is in an uptrend, backed by a sloping support line (marked as green on the chart). If US inflation exceeds projections, the S&P 500 may return to this support near $6,515.

The overall recommendation is to sell SPX if CPI readings for August outpace forecasts. Profits should be taken at the level of $6,515. Stop Loss could be set at $6,560.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.