Yesterday’s Rally: An Anomaly Until Proven Otherwise

What the heck was that? Are we rallying on inflation now? [The Rude Awakening] October 14, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Yesterday’s Rally: An Anomaly Until Proven Otherwise - The CPI overshot the consensus, as I suspected it would. - The SPX was trounced on the open, as I suspected it would. - Then, the SPX not only recovered but jumped another 90 points, which I didn’t expect. Could U.S. Patent #10-803-522 Impact Your Retirement? [James Altucher]( It predicted every market shocker over the past 2 years, including: - War - Inflation - Lockdowns - Supply Shortages - Energy Shockwaves And now… U.S. Patent #10-803-522 [is sounding the alarm on the NEXT big shocker](. (And no: it’s not a market crash). What exactly is going on? [Get in position here…before it’s too late](. [Click Here To Learn More]( [Sean Ring] SEAN RING Dear Reader, Happy Friday! We’ve finally got here, with plenty of drama. Honestly, I should put some whisky in my coffee this morning. Or, as Jeffrey Tucker might, just have bourbon for breakfast. Yesterday was one of those days that even put the mainstream financial press at a loss for words. I shake my head as I write this. So, the CPI print was high, which was expected. Well, it was expected if you [read yesterday’s Rude]( anyway. The initial market smashing was right on cue. The SPX opened down 50 points or so, and I expected it to hold there or continue down for the rest of the day. But then something happened. The market rebounded. And the market didn’t just rebound. It rocketed upward. In no time at all, it reversed its losses from yesterday. And then, somewhat inexplicably, it rallied for nearly another hundred points. In the S&P? Really? Really. I’m not even going to attempt an explanation. Ok, maybe one or two. What’s more important is understanding the price action and the context of yesterday’s movement within the overall market. This is one of those Rudes where I invite you to disagree with me. No one really knows the answers as to why the markets move so frivolously from time to time. So, we must use our imagination, test our hypotheses, and see if our conclusions work. Here we go. The CPI Print First things first. Following yesterday’s higher-than-expected PPI print, we surmised that the CPI print would also be high. It was. [SJN] Credit: [The Wall Street Journal]( The year-on-year CPI print for September came out at 8.2% year-on-year. The core CPI, which strips out food and energy, was ever scarier. At 6.6% year-on-year, that’s higher than the March 2022 print of 6.5% and the highest since August 1982’s 7.1% print. For the month-on-month numbers, the [Bureau of Labor Statistics (BLS) wrote in their press release]( Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase. These increases were partly offset by a 4.9-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 2.1 percent over the month as the gasoline index declined, but the natural gas and electricity indexes increased. The index for all items less food and energy rose 0.6 percent in September, as it did in August. The indexes for shelter, medical care, motor vehicle insurance, new vehicles, household furnishings and operations, and education were among those that increased over the month. There were some indexes that declined in September, including those for used cars and trucks, apparel, and communication. For the year-on-year numbers, it commented: The all-items index increased 8.2 percent for the 12 months ending September, a slightly smaller figure than the 8.3-percent increase for the period ending August. The all items less food and energy index rose 6.6 percent over the last 12 months. The energy index increased 19.8 percent for the 12 months ending September, a smaller increase than the 23.8-percent increase for the period ending August. The food index increased 11.2 percent over the last year. Ok, your gas prices have come down - unless you still, somehow, live in the People’s Republic of California - but everything else that matters is still up. Thanks to these prints, the market has no doubt Jay Powell and his conFEDerates will raise rates yet another 75 bps at their next meeting in November. So how did the market react? The Price Action As the CPI prints at 08:30 EST and the market opens at 09:30 EST, traders get a full hour to digest the news, good or bad. I can only imagine their chubby digits typing in all those sell orders. And on the open, we gapped down hard from the previous close to the tune of 85 points in the SPX. And that was just the first half-hour. Now when a market open is that bad, it’s natural for it to sometimes climb back up to the previous day’s close. It’s the market’s way of getting its ball bearings. And that’s what happened after about an hour and 45 minutes. But then, it kept going. And going. And going. [SJN] What’s odd is that it rallied another 90 or so points before the close. And here is where the conjecture begins. Why would the market continue to rally after a terrible CPI print and the assumption that the Fed will surely hike 75 bps at its next meeting? [Have you heard George Gilder’s latest extraordinary prediction yet?](pro.threefounders-reports.com/m/2094943?ESP_MAIL_ID=5297378&ESP_ORG=400&ESP_EXP_ID=7172794&ESP_CNTC_ID=MDAwMDgzODgwNTcz&ESP_A=72570) He was dubbed the “Tech Prophet” by Forbes… once won the White House Award for Entrepreneurial Excellence… and his work is respected by tech insiders like Bill Gates and former Google CEO Eric Schmidt… And recently, Gilder went on camera to explain how a new tech revolution is about to hit America… one that could unleash up to $15.1 trillion in new wealth. According to Gilder, if you don’t understand this new tech you could miss out on one of the greatest moneymaking opportunities for thirty five years. [Get more details here.]( [Click Here To Learn More]( Why Did the Market Rally So Hard? Let’s introduce a bit of context. [pub] Looking at the daily SPX chart above, you can see the huge white candle representing yesterday’s trading. It’s a big bullish signal. The algos may have thought the selloff to 3,500 was too much, too soon, and started buying. That’s perfectly feasible, I think. But keep in mind that the candle is only just above the 8-day exponential moving average (EMA). And below all the other EMAs on the chart. So, it’s not exactly setting the world on fire. Overall, it’s an ugly, bearish chart. Nevertheless, yesterday’s candle indicates a clearly bullish move. The chart below is the daily SPX (same as above) but with the Keltner channels around the 21-day MA. [SJN] The SPX got down to the 3-ATR lower band, which can act as a buy signal. It just means the SPX got oversold. Fair enough. Bulls climb the wall of worry. Bears crash the party. My conclusion: we got overexcited. Opportunistic algos and discretionary traders took the opportunity to buy back some shorts. Wrap Up Tomorrow matters. If we continue the move up, we can see a lovely little sucker’s rally forming. I’d use that opportunity to get short the market again. It’ll be a rare move indeed if this candle is the beginning of a new bull market. It’d be rarer still in a hiking cycle that shows no sign of abating with inflation numbers that simply won’t go away. Up is down in Clown World, it seems. Never mind. The market deals the hand. We must play it. So, enjoy a lovely glass of vino after you’ve finished your cup of joe and your workday. As Winston Churchill once said, “I could not live without Champagne. In victory, I deserve it. In defeat, I need it.” Have a lovely weekend! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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