- Moving the markets
Stocks resumed their Ramp-A-Thon into tomorrow’s CPI report, as traders were betting that Thursday’s inflation data will present validation of a decelerating trend. Confidence reigned supreme that the Fed’s rate hikes had their planned impact and that a policy reversal might be on deck, as “the Fed will cave” story gained momentum.
While the CPI forecast still calls for a 6.5% increase from the prior year, prices are expected to have slipped a moderate 0.1% in December from the prior month. Even Bloomberg chimed in with the headline “Stocks Bounce Back with Brewing Optimism Over CPI,” as the hype shifted into overdrive.
A big assist came again from a short squeeze, forcing prices higher like they did ahead of December’s CPI, before plunging back to reality, as ZeroHedge put it. Trader Gurmit Kapoor clarified the importance of this upcoming data point as follows:
Tomorrow’s CPI event risk could be a decider where the S&P 500 can either break above its 200-day moving average, the 4,000 level and the downtrend line, or we head back to 3,800.
Bond yields retreated, the US Dollar stayed in its sideways channel, and Gold inched higher, but its move was marked by wild intraday swings.
A tip of the hat goes to ZH for graphically pointing out what happened in December after a “soft” CPI print.
Will history repeat itself via following the adage “buy the rumor, sell the fact?”
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most recent StatSheet for ETFs selections. However, if you came on board later, you may want to look at the most current version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend for you to consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.
We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices. I can see this current Buy signal to be short lived, say to the end of the year, and would not be surprised if it ends at some point in January.
In my advisor practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.
With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.
3. Trend Tracking Indexes (TTIs)
Our TTIs jumped, as traders were betting heavy on a weaker than expected CPI reading.
This is how we closed 01/11/2023:
Domestic TTI: +5.23% above its M/A (prior close +3.97%)—Buy signal effective 12/1/2022.
International TTI: +7.27% above its M/A (prior close +6.52%)—Buy signal effective
12/1/2022.
Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the specified guidelines.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
Contact Ulli