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Hotter Core Inflation Please click here for a chart of SPDR S&P 500 ETF Trust (ARCA:SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows that the stock market is in between the top support zone and mini resistance zone.
- The chart shows that RSI is approaching oversold.
- The chart shows that, overall, the stock market is directionless.
- The newly released data shows that core inflation is running hotter than expected. Here are the details of the consumer price index.
- Headline CPI came at 0.6% vs. 0.6% consensus.
- Core CPI came at 0.3% vs. 0.2% consensus.
- Initially, both stock and bond markets reacted negatively to the hotter than expected core inflation, but buying came in quickly as momo gurus’ new narrative took hold. Momo gurus are often wrong. Nonetheless, you need to pay attention to them because the momo crowd blindly follows them.
- Momo gurus’ new narrative has two parts.
- Buy stocks because headline CPI came as expected. The flaw in this narrative is that on an annualized basis, headline CPI is at 7.2%. Momo gurus counter that the number is high because of higher oil prices and the resulting higher gas prices. Well, most people drive and spend money on gas; it is fine to exclude gas for analysis, but the reality is that rising oil prices can not simply be ignored.
- The second part of the momo gurus’ new narrative is to buy stocks by looking past the hotter than expected core CPI. The reason is that they claim to know that in the future core CPI will come down. Remember, Arora’s Second Law of Investing and Trading: “Nobody knows with certainty what is going to happen next in the markets.” The reality is that nobody knows, including momo gurus, what core CPI will do in the future.
- Producer Price Index, which measures inflation on the producer level, will be released tomorrow at 8:30am ET.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. Retail sales data will be released tomorrow at 8:30am ET. The consumer has been on a buying binge with excessive spending. There are many metrics that are showing that the consumer is running out of cash and charging more and more to credit cards. Tomorrow’s data will be a tell on the status of consumer spending.
- Tech CEOs are heading to Washington for a seven hour long session with senators on AI. All 100 senators have been invited. Expect the momo crowd to try to move up AI stocks. However, the session is closed to cameras. This will limit any upside buying.
- Quadruple witching is ahead on Friday. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
- Quadruple witching often leads to volatility. Historically, often, quadruple witching in September is vicious.
- ARM IPO is 10 times oversubscribed. This is creating positive sentiment.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
Europe There is speculation that the European Central Bank will hike interest rates by 25 basis points tomorrow.
The U.K.’s GDP contracted at the fastest monthly rate since December. Economic data in the U.K. has often led economic data in the U.S.
India After the success of the G-20 summit in New Delhi, sentiment towards Indian stocks is approaching extremely positive. Keep in mind that when sentiment enters the extremely positive zone, it is a contrary signal. In plain English, this means that it is time to sell. However, sentiment is not a precise timing indicator.
Magnificent Seven Money Flows In the early trade, money flows are positive in Meta Platforms Inc (NASDAQ: META), Tesla Inc (NASDAQ: TSLA), and Apple Inc (NASDAQ: AAPL).
In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ: AMZN), NVIDIA Corp (NASDAQ: NVDA), and Alphabet Inc Class C (NASDAQ: GOOG).
In the early trade, money flows are neutral in Microsoft Corp (NASDAQ: MSFT).
In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
Momo Crowd And Smart Money In Stocks The momo crowd is buying stocks in the early trade. Smart money is