Once again, the CPI result of +8.2% came in hotter than the 8.1% expected consensus. And all markets are cratering. Will we finally see capitulation? No, we will not. I mean, really, such dramatic swings over such miniscule variations from expectations. The markets really are all amok right now.
The 10Y Treasury will inevitably trend higher. Stocks will trend lower. But after today’s opening sell off, I am a buyer looking for a short-term bounce (FAS, TQQQ, TNA). Given the level of the VIX (likely opening above 35 today), I am also selling 10-20% out of the money naked puts on the leveraged ETFs (SQQQ, TZA, SPXU, FAZ). The RSI across major indices is again at or below 30 and everything looks oversold. Here is a six-month chart of the QQQ that doesn’t even include today’s dip:
Yes, we could certainly go lower and may see some capitulation today. However, given the Fed is still nowhere near peak rates, there is so much more carnage to come in the coming months. This is a trader’s market. Play the sentiment and the RSI, but be ready to reinstate your medium-term bearish positions. This will last at least until year end and likely into 2023.
Happy trading!