Inflation Reality Check: Markets Rally While Costs Surge

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Our View

WOW! It’s 10:42 am, and the day range is only 16 points. The high is 6309.25, the low is 6293.25, with a Globex low of 6290.75, and it is trading 6296.00 with 333k contracts traded.

I get it—it’s the first trading day after almost 75 million people traveled for the 4th of July, and guess what? I don’t think they are hurrying back to trade the ES futures.

After the early pop, the NQ started to fade and dragged the ES down below the Globex low at the 6293 area. It hung around the 6296 level, and then (as expected) out came the Trump, Japan, and South Korea 25% tariff headlines. The ES quickly sold off down to 6260.25.

Over the next hour, the ES made a few higher lows and a small buy program high just after 1:00 that pushed the futures back up to the 6278 level at 1:21. It then hung around the 6269–6272 area, rallied a little, and reversed down to new lows at 6246.25 going into 2:30.

After that, it moved up to the 6272 area, pulled back to the 6260 area, and rallied up to the 6276 area after the MiM came out $4 billion to buy, and traded 6275 on the 4:00 cash close.

In the end, there was a lot of headline risk, and that set the early tone. In terms of the ES’s overall trade, volume was low at 1.193 million contracts traded.

Early in the day I posted this in the room:

 IMPRO: Dboy (10:29:14 AM): no way do they do 1 mil volume today

But that was before the 12:25 headlines. There were just over 330k ES traded, and that jumped to 730k at 1:27.

Adding to the weakness—and something I talk about a lot—are the bonds and notes. The bonds just made a 113.28 low, down 0.97 or -0.84%, and the notes sold off down to 113.28, -0.82%, and the yield jumped to 4.385%. The yield on the 10-year note rose 5.1 basis points to 4.391%, from 4.34%.

The dollar index rose 0.58% to 97.53, with the euro down 0.59% at $1.1709, and against the Japanese yen, the dollar strengthened 1.04% to 146.02.

How Much Does a Cheeseburger Cost?

How does the saying go? We live in interesting times? Of course, we do—but they are also unprecedented.

If you take the dollar down almost 11% YTD, and then you take the inflation numbers and what people are paying at the grocery store, it just doesn’t add up. And if you go out to dinner, it’s not uncommon for a couple to spend $50.00 per person with no cocktails.

You want to go out for a hamburger? That’s $20.00+, and with fries and a Coke, you’re pushing $28.00. Yet the Fed is pushing its rate cuts again.

I know we need lower rates, but shouldn’t that come at a time when we start to see prices fall instead of still going up? So far, the Fed has had extremely ineffective policies that have not helped the extremely weak Treasury markets and dollar.

I believe this is ground zero for the US economy, and while the S&P and NASDAQ will continue higher, I also see warning lights flashing—especially when you’re talking new all-time highs and rate cuts.

Our Lean — Danny’s Trade (Premium only)


MiM and Daily Recap

ES Futures Market Recap – July 8, 2025

The overnight Globex session began with a solid 24-point gap up from the US holiday weekend. Overnight, it drifted lower. ES futures opened at 6307.75, climbing to a premarket high of 6315.00 at 8:15 AM. This early push reflected a gain of 10.50 points (+0.17%) off the overnight lows. However, the tone weakened leading into the cash open, as price retreated to 6297.25 by 9:30 AM, marking a 17.75-point pullback (-0.28%) from the premarket high.

As regular trading commenced, a quick rebound lifted ES back to 6309.75 at 9:50 AM, recovering 12.50 points (+0.20%) before renewed selling pressure emerged. By 11:50 AM, the index pressed down to 6279.75, losing 30.00 points (-0.48%) off the morning rebound. A short-lived bounce developed into midday, reaching 6291.25 at 12:05 PM, but the rally again failed to hold.

Selling accelerated into early afternoon, dragging ES to fresh lows of 6260.25 by 12:20 PM, a 31-point slide (-0.49%) from the preceding high. Another recovery attempt unfolded after 1:00 PM, with the index climbing to 6282.50 by 1:30 PM, recovering 22.25 points (+0.36%) before renewed rotation set in.

Into midafternoon, the market oscillated in a broader range. A rally to 6272.00 at 3:00 PM was followed by a deeper retracement to session lows of 6246.25 by 2:20 PM, representing the largest decline of the day, down 36.25 points (-0.58%) from the last peak. After finding support, ES staged a late recovery to 6278.00 by 3:55 PM, marking a 31.75-point rally (+0.51%). The final minutes saw a mild fade into the close.

By the settlement at 4:00 PM, the regular session closed at 6275.50, down 26.50 points (-0.42%) from the day’s open. Compared to the prior cash close, the session netted an 8-point decline (-0.13%), reflecting a persistent downward bias despite intraday rebounds. The full session (Globex through Cleanup) settled at 6263.25, finishing 44.50 points below the prior settlement, a loss of 0.71%.

Market Tone & Notable Factors

Overall, market sentiment leaned bearish. Sellers maintained control throughout most of the session, consistently capping rebounds and pressing prices to lower lows. The pattern of failing rallies and progressive declines indicated a defensive posture among participants.

Volume was respectable, with over 1.19 million contracts traded across all sessions. This liquidity helped sustain the multi-leg selloff and fueled intermittent recoveries.

The Market-on-Close imbalance data showed a notable skew. The dollar imbalance reached an 82.7% buy, exceeding the 66% threshold for strong buying pressure, with total imbalance dollars reported at $3.937 billion. While this late imbalance favored buyers, the symbol percentage was only 56.7%, not confirming an extreme breadth of buying interest. Despite this strong dollar bias into the close, the final upward impulse lacked follow-through, and prices retreated modestly off the 3:55 PM highs.

In summary, the ES futures ended firmly lower as sellers dictated the tone across both Globex and regular sessions. While afternoon bounces appeared constructive, they failed to recover the bulk of the losses. Market participants will be watching whether the high closing imbalance sets up a stronger bid into the next session or if sellers remain in control.

Technical Edge 

Fair Values for July 8, 2025:

  • SP: 50.87

  • NQ: 214.52

  • Dow: 299.85

Daily Market Recap 📊

For Monday, July 7, 2025

NYSE Breadth: 59.90% Upside Volume
Nasdaq Breadth: 62.44% Upside Volume
Total Breadth: 63.73% Upside Volume
NYSE Advance/Decline: 56.50% Advance
Nasdaq Advance/Decline: 58.30% Advance
Total Advance/Decline: 57.61% Advance
NYSE New Highs/New Lows: 119 / 25
Nasdaq New Highs/New Lows: 284 / 100
NYSE TRIN: 0.65
Nasdaq TRIN: 0.80

Weekly Breadth Data  📈

For Week Ending Thursday, July 3, 2025

NYSE Breadth: 57.89% Upside Volume
Nasdaq Breadth: 60.33% Upside Volume
Total Breadth: 59.46% Upside Volume
NYSE Advance/Decline: 72.28% Advance
Nasdaq Advance/Decline: 66.08% Advance
Total Advance/Decline: 68.89% Advance
NYSE New Highs/New Lows: 216 / 80
Nasdaq New Highs/New Lows: 465 / 275
NYSE TRIN: 1.86
Nasdaq TRIN: 1.24

ES & NQ Levels (Premium only)

Calendars

Economic Calendar

Today

Important Upcoming

Earnings

Trading Room Summaries

Polaris Trading Group Summary - Monday, July 7, 2025

Morning Kickoff and Preparation

  • David shared updated zones and key resources including the Daily Trade Strategy and Range Calculator.

  • Members reconnected after the July 4th holiday with some casual conversation and photos before the open.

Early Trading Successes

  • Crude Oil Open Range Long trade moved higher early and reached Target 2. David emphasized precision execution.

  • Early price action remained contained within the defined sandbox zone of 6295–6310.

Key Levels and Scenarios

  • David established 6295 as the Line in the Sand (LIS).

    • Bull Scenario: Holding above 6295 would target 6310–6315.

    • Bear Scenario: Trading below 6295 would target 6280–6275.

  • This framework guided the morning and midday trades.

Bearish Follow-Through

  • The Bear Scenario activated successfully as price dropped to the 6280 target area.

  • David noted the importance of staying aligned with the sell-side until a clear structural bull shift developed.

Notable Community Trades

  • John B shared a trade that initially missed his first profit target by a tick but later reached it. He managed the position using trailing ATRs and followed his rules without interference.

  • David acknowledged John’s approach as excellent adherence to process.

Major Market Catalyst – Tariffs

  • Throughout the session, multiple tariff headlines emerged:

    • 25% tariffs announced on Japan and South Korea.

    • Later in the day, new tariffs were declared on Myanmar, South Africa, and Kazakhstan.

  • David kept everyone updated, observing that traders often use this type of headline volatility as an excuse to take profits near all-time highs.

Afternoon Session and Close

  • The D-Level Money Box strategy worked effectively again.

  • Into the close, there was a $4.1 Billion Market-on-Close (MOC) Buy Imbalance.

  • David reminded members that MOC trading lacks a repeatable edge and should be treated cautiously or avoided.

Positive Trades and Lessons Learned

Positive Trades:

  • The Crude Oil Open Range Long reaching Target 2 was a strong early execution.

  • The Bear Scenario levels were respected, and price fulfilled the 6280 target cleanly.

  • John B’s disciplined management of his trade, including adherence to his trailing exit rules, demonstrated solid process focus.

Lessons Learned:

  • Clear scenario levels and sticking to them helps avoid reactive decisions.

  • Avoid seeking validation on social media when managing trades. A trade’s quality depends on whether it follows tested rules and edge.

  • News headlines, such as the tariff announcements, can create volatility but do not automatically provide a trading edge.

  • The MOC imbalance can appear tempting but often lacks a reliable statistical advantage.

Discovery Trading Group Room Preview – Tuesday, July 8, 2025

  • Tariffs & Trade:

    • President Trump announced updated tariffs (25–40%) on over a dozen countries, nearly identical to the prior Liberation Day measures.

    • The deadline for negotiations was extended to August 1, with key partners Japan, South Korea, the EU, and India in focus.

    • The EU seeks a permanent 10% tariff cap excluding aircraft, wine, and spirits.

    • China warned of retaliation if the US reinstates tariffs next month, calling the approach “bullying.”

  • Market Conditions:

    • No major earnings releases today.

    • Economic calendar is light, with Consumer Credit data at 3:00 pm ET.

    • Volatility increased Monday, with the ES pulling back from all-time highs; 5-day average range: 52.25 points.

    • No significant overnight positioning by large traders (“no whale bias”).

    • Technicals: ES remains in a short-term uptrend. Watch for a potential bullish crossover of the 50-day MA (5981.75) over the 200-day MA (5983.75).

    • Key Levels:

      • Resistance: 6349/52, 6430/33

      • Support: 6078/81, 6046/49, 5643/48

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!