Market On Open - Thursday 9 May

Market On Open - Thursday 9 May
Photo by Rob / Unsplash

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Nothingburger Days Are Not Nothing

by Alex King

Volumes are rather low across equity indices at present, with bigs likely waiting for next week’s CPI print (Wednesday 15th May, 0830 Eastern). Now, whilst I don’t say that bigs know what the CPI print will be, but bigs probably have a better idea of what it might be than your average investor. They can do so without any kind of nefarious activity. If you have a large research budget you can carry out many of the same checks that the federal government does, and if you know the government methodology, which is published of course, then you can develop your own estimate of CPI and probably get pretty close most of the time. Then, since you are wired into government in a way which can be completely legal but also way above the pay grade of that same average investor, you should know, as a self-respecting big, what CPI number means the rate-setting agenda remains unchanged or changed. And that of course is what will drive equities come CPI time. Here’s how it will go.

0830, CPI prints.

0830 plus half a nanosecond, government bonds and equities go nuts in direction A, then direction B, then probably A once more, then head off in direction C, where C may equal A or may equal B but in any event C is the output of the model built based on all that prior research.

Low CPI, market heads up to new all time highs in my view.

High CPI, a selloff in anticipation of a changed rate story.

High CPI followed by a series of calming Tweets from Nickileaks explaining how CPI may look high but isn’t really and look, really, is Mr Powell honestly going to derail the democratic process by whacking gas up to $7? - then after the dump may come another move higher.

What a nightmare for the average investor.

How to deal with this?

In my view the answer is, learn to hedge. This is the method I use personally and it is the method we teach all day long in our Inner Circle service, to good effect I might observe, if our member reviews are anything to go by. The charts we publish in this Market On Open note each day are useful to any investor but they are high-value-actionable to anyone running a hedging strategy as I do and as we teach in Inner Circle.

And with that in mind, without further ado, let's get to that daily market analysis. As always we cover all four primary US equity indices (the S&P500, Nasdaq-100, Dow Jones-30 and Russell 2000); bonds (TLT), volatility (the Vix), oil (USO) and sector-specific ETFs. We provide long- and short-term insight daily and we include coverage of leveraged ETFs which - if you have gotten sharp at the rotation and hedging methods we teach - can be used to very good effect. All of this features daily in the pay version of this newsletter.

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