Inflation Who? Market Surges On Strong Retail Sales And Short Squeeze

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[Chart courtesy of]

  1. Moving the markets

The market soared today as investors shrugged off inflation fears and snapped up stocks that were heavily shorted. This triggered a powerful short squeeze that boosted our domestic TTI deeper into the green zone. This means we can breathe a sigh of relief and postpone any potential “Sell” for now.

The market optimism was fueled by better-than-expected retail sales in August, which rose 0.6% against a 0.1% increase forecasted. This shows that consumers are still spending despite supply chain disruptions. Excluding autos, which are hard to find these days, retail sales also rose 0.6%, beating the 0.4% estimate.

On the other hand, inflation remained hot as the producer price index (PPI) jumped 0.7% in August, more than the 0.4% expected. This was the highest increase in 14 months. But who cares about food and energy prices, right? If we exclude those pesky items, core PPI only rose 0.2%, matching the estimate.

Meanwhile, across the pond, the European Central Bank (ECB) raised its key interest rate by a quarter percentage point, as expected. But the ECB also hinted that it might be done with hiking rates for now, as inflation is easing in Europe. Lucky them!

Back in the US, the Federal Reserve is likely to keep its rates unchanged at its September meeting next week, according to the latest pricing data. The odds of a rate hike in November are still low, but not zero. If the economy continues to surprise on the upside, the Fed might have to reconsider its stance and tighten its policy sooner than later.

One of the bright spots in today’s rally was Arm shares, which soared more than 15% on their first day of trading. The chip design company had the biggest tech IPO of the year and raised hopes for a revival of the tech IPO market. Arm’s IPO was priced at $51 a share, which seems like a bargain now.

In summary, today’s market action was a mix of good news and bad news, depending on your perspective. The good news is that the economy is strong and resilient. The bad news is that inflation is high and persistent. The market chose to focus on the good news today and ignore the bad news.

But will this last? How long can the market defy gravity and ignore inflation? And more importantly, how long can we ignore food and energy prices?

2. “Buy” Cycle Suggestions

The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.

You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.

We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.

Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.

3. Trend Tracking Indexes (TTIs)

The market surged today as many investors bought stocks that were previously sold short, causing a strong short squeeze. This pushed our domestic TTI further into the positive zone, reducing the risk of a “Sell” signal in the near future.

This is how we closed 09/14/2023:

Domestic TTI: +2.11% above its M/A (prior close +0.93%)—Buy signal effective 12/1/2022.

International TTI: +4.49% above its M/A (prior close +3.40%)—Buy signal effective 12/1/2022.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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