A Full Review of A 1m Wave on CPI Day (2/12/25)

On February 12, 2025, CPI came out at 5:30 AM PST, and pulled the markets down significantly in the pre-market. But as we’ll see shortly, the news reaction was exaggerated and irrelevant, as it usually is, and was actually a great setup for multiple long positions.

Recent History

Have you been paying attention to the indexes over the last few days? I will be focusing on Nasdaq, but much of the main action has been identical on the S&P 500. We’ve seen some increased volatility overall, starting with the overreaction to news about DeepSeek, and then another overreaction to the Consumer Sentiment last Friday.

Here are the things I was looking at going into this CPI release.

First of all, the daily chart has remained bullish through all of this news-related frenzy from late January. When the DeepSeek news hit, the semiconductors and various tech stocks fell dramatically to start the week from January 27. But notice that the bottom held, and the market rebounded about halfway before the close of that day.

The candle in question is circled, and the bottom is marked with the yellow support line. In addition, we had a gap above this. As I often teach students, a gap like this one always deserves our attention as day traders. The gap is circled in orange.

Throughout all of this action, the MACD remained above the 0 line, and even maintained above the signal line except for a slight dip at the start of February. I had my eye on this the entire time, and used this to deduce that the overall trend is not only bullish, but gathering strength for the upcoming weeks.

Consumer Sentiment

Consumer Sentiment came out on Friday, February 7, at 7:00 AM PST. The market often has some increased volatility around this release, but this last Friday’s release was extraordinary. The market plunged from 21900 to 21720 in just the first 5 minutes, which told me that this was an overreaction.

Not only was the market bullish overall leading up to this point (suggesting that any major drop is a fakeout), this particular news release never demands a 150+ point drop in 5 minutes. It was too obvious. The market fell further into the weekend, gapping down again on Sunday, and swiftly rebounded to start this week.

Great, the flush is completed, and we’re going higher with the CPI, right? Not quite.

CPI Day

As we approached Wednesday, awaiting the CPI, the entire market seemed to slow down in the morning session. This is not surprising, as we often have a bit of a pause before a major release. But even though everything was still mostly bullish, an experienced trader knows that it’s still possible for the CPI to cause some major volatility in either direction. All we have to do in this situation is wait and see what happens at the release.

Unsurprisingly, the CPI release brought a spike in volatility, taking Nasdaq down about 300 points. It fell just short of tagging 21500, and then made multiple strong bullish signals at the bottom, tipping us off for the morning session.

If you are learning candlestick patterns, the inside bar (or harami) and engulfing, as well as hammer variations are extremely vital clues about imminent trend shifts. I have my charts automatically flag these candlesticks with the blue arrows you see below.

By the time the market opened, we had already recovered about 70 points, and the opening 15-minute candle recovered another 80 on top of that.

Trade Example

The main trade of the day for me was what I call a Wave Reversal, coming on the 1m chart. This setup came shortly after the market pulled back for the first time. Once this happened, I was ready to look for a long signal, which doesn’t always come in this situation. On this day, it did, but it still required some patience to set up. NQ still had to exhaust on the 1m as shown by the MACD, boxed in yellow.

A proper exhaustion during a wave should take at least a few candles-time to be completed, and in this case we got a solid 8-10 minutes on the 1m chart.

After getting in long, this setup tells us the next price target is through the highs, which were to the left at about 21700. But because it’s CPI, we also know price wants to go far beyond this.

This was an exceptional read as proven by the price action after the entry. Every single candle is green until it breaks the highs, which is a common occurrence when so many factors are in sync for a powerful reversal. Price action like this validates that this was a correct identification of this 1m Wave, but we have also have the early morning volume to help push the market through its target more quickly.

Profits were taken less cleanly, as I was trading multiple accounts and didn’t use limit orders. But because the entry is the main part of the trade, I gave myself about an 8/10, and hope to play the exit a little more properly next time. Ideally, at least one account should have been allowed to run the entire day in this situation.

Conclusion

There’s more that goes into determining the validity of the entry signal, the general 1m chart structure, and more. But I wrote this to display the type of thought process behind evaluating the overall market context. I believe this type of awareness is necessary to achieve mastery in trading.

While we look for positions in the short term as day traders, it’s important to understand what has developed leading into the current session. If you don’t, you are making decisions with incomplete information, and effectively gambling.

Masterful trading involves awareness which extends far beyond knowing that news is coming out today. It’s knowing these larger trends and patterns that allows us to align ourselves with the right direction in the market each day.

Plenty of traders are shorting today, and some may still be short. I don’t envy them, and neither should you. When you’re ready to begin approaching the market in a similar way, join us on Discord and share your questions or comments!