With the S&P 500 trading in a tight range near record highs, BK Asset Management strategist Boris Schlossberg is watching for three events Thursday.
1. Nordstrom earnings
Nordstrom's earnings report after the closing bell could shed light on the state of the struggling brick-and-mortar retailers.
A positive earnings report "could be a sign that the problems with retail are beginning to even out" and that "retail is stronger than we think," Schlossberg said Wednesday on CNBC's "Trading Nation."
Shares of Nordstrom are up 2 percent in the past year. That represents serious underperformance against the broad market, but actually makes the stock the best-performing multi-line retail name in the S&P 500 in that period.
"While Nordstrom is still subject to the significant macro headwinds, we do believe the concept has more 'staying power' on a longer-term basis" Piper Jaffray research analyst Erinn Murphy wrote in a note Tuesday.
2. Inflation update
A key economic report is on tap for Thursday morning — the Producer Price Index for final demand. PPI-FD measures the prices that U.S. producers are paying for goods and services. Since the producers will eventually sell their products to consumers, this report is often considered a leading indicator of consumer inflation.
Inflation data is especially important now, since rising prices give the Federal Reserve its rationale for raising short-term interest rates. Yet as Schlossberg points out, the last PPI-FD report actually showed a mild month-over-month drop in inflation.
"If we have another month of negative inflation data, that's going to make the assumptions of three rate hikes very problematic," Schlossberg said, referring to current market consensus about the Fed's future interest rate policies.
Shifting views on the Fed could have serious impact on the value of the dollar, bonds and equities, he added.
3. The VIX
The CBOE volatility index has gripped investors' attention lately. The VIX, which measures the magnitude of the moves traders expect to see from the S&P 500 in the future, is near 10-year lows, thanks to the S&P's gradual upward glide.
"Volatility is supposed to be mean-reverting, and if that's the case, we may be in serious trouble," Schlossberg said. The VIX remaining at multiyear lows "suggests that it could pop like a ball from underneath water."
To be sure, the VIX has remained at historically low levels for some time now, frustrating the many investors who have tried to bet on rising volatility through the use of products that track the VIX futures (as the VIX itself cannot be traded).
"If the VIX starts to go really high, that means equities are going to be in trouble," Schlossberg added, obliquely referring to the negative correlation between the volatility index and the S&P 500 itself.