CPI numbers

Good morning!

We have had once again a rollercoaster type of tape, in which downward pressure managed to push certain stocks and the $QQQ back, but not so much the $SPY. The fact that we had stock specific action made it more difficult to navigate the day. The only useful hedge to have was to short the tech sector, but then you had $AAPL and $GOOGL sticking out green, when the $QQQ reversed, so it was plenty of misdirection. If you had plenty of paper cuts don’t stress because this comes with the territory. The $SPY was much more extended than the $QQQ, which has been sitting just above the moving averages. If there was a short to try it was in the $SPY, but then the backbone did not bend that easily for your hedge to work. Back to the drawing board. The advantage: everyday starts fresh so you can choose your own tactics. Today we have a binary event at 8:30 ET – the CPI numbers. All the media is screaming: prepare for the highest reading in 40 years. Has this been priced in so far? It is possible the number not to be so hot, as in November the prices for natural gas and oil fell. An increase of 0.7% month on month is expected and in total an increase of 6.7% from last year. If the numbers are in line or lower we may see a boost in stocks. If not, selling could take place as investors fear the FED could double the tapering pace t0 fight inflation faster rather than at the current speed. We seem to circle around inflation and tapering, as recession is the next ugly step in this cycle. However, when everyone is so negative and the chatter is so pronounced you have to try to read between the lines in order to anticipate moves which could create cashflow. The volatility index ticked higher yesterday afternoon, but it did not move much in order to signal a real panic mode. It is possible with every event like this for the market to price it in and for the reaction to not be so aggressive. Be at your screens when the CPI numbers are out to see the market’s first reaction as this is usually the correct one. This can help you position for today – in either direction.

$SPY Chart

In yesterday’s downtrend the $SPY went below Wednesday’s low and reclaimed it, and it did not even go to the 8 day EMA, which is at $463.48. This shows you that the backbone of the market is quite strong and we may have had the year’s low put in last week. If the numbers are are hot we may see the $SPY dip below the 8 and 21 day but if it is strong it should not go to $458.65. See if the $SPY recover and stays above the moving averages in case of a dip, and if it does you can buy it against the low of the day for a move higher. If not, get out of the way and keep your portfolio light, as cash is a position.


$QQQ Chart

The tech sector ETF had a weak day but it managed to close on the 8 day EMA, which signals resilience. There was a sign that it reversed to the downside when it went to $400 and came back, but strong stocks such as $AAPL, $GOOGL and $MSFT created misdirection. I was not so fast in getting out of my positions when I saw these giants holding green candles, and this created some paper cuts in my portfolio. This kind of action is difficult to avoid, but what you can do is to acknowledge it as fast as you can and not fight it. As I said trend is your friend, and when the trend is going lower you can short or get out of the way. Watch for the $QQQ to hold this gap and the moving averages if there is any hope for this move higher to hold. It should hold $392-393, otherwise there is a gap to be filled until $387.6.


When you have macro binary events like today it is a good idea to stay light, elastic and ready for any sudden move. Don’t fight the trend as it will be heavy and painful, and this will lose you all of the week’s gains. If the ETFs signal a reversal to the downside get out of the way and wait for market discovery, the dips may not be buyable and you may find yourselves catching falling knives. There is no need to prove anyone anything just because you believe the opposite, just watch the movement and get in the flow. If you cannot do that just stay a spectator and learn from this, as patterns are extremely useful to observe. Watch our Twitter updates today as they will be crucial for your edge, and don’t jump to any conclusions until you see a clear path.

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