On daily basis’s motion convinces me extra that the underside is in. I known as it in mid-June and nothing has modified my thoughts. This morning we obtained the horrible inflation information (a little bit of sarcasm). Right here was a CNBC headline:
And if you would like to spend some cash for slightly Monday morning quarterbacking, here is one other:
For a couple of hundred {dollars}, you’ll be able to uncover that market execs see larger danger of recession. Wow, breaking information!
Wall Road is wanting previous inflation and so ought to we. Pay attention, the information wasn’t good in any respect. I am not downplaying the information. Headline CPI for June rose 1.3%, properly forward of the 1.1% estimate. If we strip out unstable meals and vitality, June Core CPI rose 0.7%, once more properly forward of the 0.5% estimate. However do not make the error of buying and selling based mostly on information or headlines. It is far more necessary to see how Wall Road reacts.
I used to be pretty assured the promoting this morning wouldn’t final. Try the restoration in a couple of key ratios:
I do not know what the remainder of the day holds, however with terrible inflation information, I am seeing discretionary (XLY) soar vs. staples (XLP) for the reason that opening bell. The identical holds true for each the NASDAQ 100 vs. S&P 500 (QQQ:SPY) and progress vs. worth (IWF:IWD). Ask your self, why would cash rotate INTO these areas if inflation is accelerating? In fact, we have not closed for the day and we all know how shortly situations can change on Wall Road, however the first 90 minutes of buying and selling is relatively encouraging, in my view.
Oh, and wait till the July headline CPI hits in August. Take a look at this crude oil ($WTIC) chart and examine it to the headline CPI numbers:
The vertical black-dotted traces spotlight the 12th of every calendar month. From prior research, I recall that CPI cuts off because the 12th day of the month in its vitality calculation in CPI. I’ve not verified that, however that is what I recall. If true, then the next desk highlights the correlation between rising/falling crude oil costs and the month-to-month CPI numbers for each month in 2022:
The April CPI studying was the bottom of the 12 months and it corresponds with the worst 1-month efficiency in crude oil – not surprisingly. Check out the 20% drop in crude oil costs from June 12th to July 12th (yesterday). That may have an amazing “deflationary” influence when the July CPI is launched in August. The inflation narrative, whereas scorching at this time, goes to chill significantly a month from now.
That is one motive why Wall Road is utilizing at this time’s information to scare merchants out of their aggressive progress shares. They have been fortunately shopping for all of them morning. If it continues into the afternoon and shut, that will be fairly bullish market habits.
Regardless of all of the unfavourable information that continues to pour out, worry is subsiding. That is absolutely the worst information for bears that imagine we’re in 1929, 1974 or 2008. The Volatility Index ($VIX) hit an intraday excessive at this time of 29, but it surely shortly turned unfavourable and is at present close to the flat line. The VIX beforehand noticed highs within the 38-39 vary when worry ramped up. As worry subsides, so too does the panicked, impulsive promoting.
I not too long ago did an evaluation of intraday buying and selling of the QQQ for the months of April via July and realized how Wall Road has been accumulating positions, whereas concurrently encouraging the investing public to promote. It was completely AMAZING and, for those who’re a dealer, you MUST be within the know. If you would like to see what I am speaking about, CLICK HERE to enroll along with your title and electronic mail tackle for our FREE EB Digest, and I’ll publish the info within the Friday, July 15th publication, at 8:30am ET. Belief me, you will be amazed like I used to be!
Completely happy buying and selling!
Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, an organization offering a analysis and academic platform for each funding professionals and particular person buyers. Tom writes a complete Day by day Market Report (DMR), offering steering to EB.com members day-after-day that the inventory market is open. Tom has contributed technical experience right here at StockCharts.com since 2006 and has a basic background in public accounting as properly, mixing a singular ability set to strategy the U.S. inventory market.
