Im getting real sick of popcorn this year but Ill ofcourse have some ready.
I have a few thoughts about CPI and potentially a big play that could form from it. I haven’t been good this year anticipating where CPI will land, Im also not sure how the market will react unless its a big suprise move. Im not anticipating a big surprise move so Im planning on playing it post drop but any upside move will be shorter scalps.
This is how Im thinking about the next few weeks. If we are thinking about CPI from a fundamental economic point of view anything “elevated” continues to punish most companies and their balance sheets. The damage in respect to current evaluations imo has already been done. Repricing from the effects of inflation and long term cycles is where earnings come in, which Ill swing back around too.
In the longer run the real economy moves in cycles and it takes time for fundamental conditions to improve. When looking at these cycles, we know what almost always happens. CPI declines, fed rate pauses then gets cut, asset prices decline, unemployed goes up, and the economy goes into a recession. Usually the severity depends on the amount of euphoria leading up to the contraction, the fiscal and monetary policy descisions during aswell as their response after, and the amount of fear that rises and how it is managed from the fed and the white house.
What the market thinks are the 2 signals that point towards a new bull market are the exact 2 things that always happens when the economy is going into a recession. Lower CPI and a fed pivot.
“But House, the fed has pivoted before? Whats the big deal this time?”
The big deal is a recession is always seen through the real economy not the stock market. Fedex earnings told us more about the economy than the last 3 CPI reports combined. Inflation has the feds balls by its hands removing the possibility of an early pivot because the risk of the 70’s all over again is too high. Stagflation with 3 recessions over the course of a decade. But this time with a much more sinister consumer and Gov Debt to GDP.
Sound fun to anyone? Sounds like hell to me.
Like I have said all year, I think the fed will pivot when something breaks, this doesnt necessarily mean a crash, Sure have some trades lined up for the possibility, but what I have found to work well with the market we have is focus on the longer “legs” up and down and have strong daily strategies. Historically when the fed pivots from their 2nd mandate, it happens because even with all of their fancy models and formulas they are making descisions on lagging indicators. When this pivot comes I pray rates went high enough that taking us back to 0% with QE is enough to weather the all out shit storm I still see heading our way.
I try not to sound ranty, I think sometimes I have a ranty thought process. My apologies.
Okay, back to the next few weeks, and why I think fundamentals may meet sentiment soon and how Im thinking about trading that possibility.
From a monetary policy standpoint its important but wherever CPI lands we are still left guessing what the fed will do next.
I mention this because if CPI comes in “as expected” or even lower I still think the market takes that as a signal we are on the other side and a fed pivot is in the bag. Listening to consistent fed talk since even before J Hole, I see that as highly unlikely.
I will play whatever is in front of me, my P/L has greatly improved since I fully committed and built a strategy around this. Thank you Valhalla.
But there is a real possibility this opens up a big play. I dont care where CPI comes in at, if the market reacts positively, and hopefully with full force 
earnings start heating up soon after. Dip buyers may get away with big tutes on Friday, but the week after is maddness. I will have puts on by then regardless of what happens with CPI, but in the chance the market uses CPI to reminisce about the stimmy fueled “good ol days” those puts pay very well if earnings season comes in as planned. (Detailed In original stag thesis) If CPI doesn’t deliver a rally, then the earnings play is still on, just might not be the mother of all bull traps I listed above.
Risk management and bull case
I posted details of my go to trading strategy I have been working on all year on discord. Its always evolving but I put a lot of time into it because as much as I want to make money in this bear market, I also want the next one to be easier. Indicators, sectors, option strategies etc.
Ive also learned mindset is extremely important to risk management. Staying green is the only thing that matters. Its violent, choppy and hard to trade. I fully anticipate at some point we get another all out balls to the wall bear market rally like we saw late June, maybe a few. Will they come? Idk, but as long as I anticipate one it keeps me from getting comfortable.
The short term bull case for this play is earnings broadly speaking come in better than expected or the fed changes their tone more dovish or signals a pivot. (A pivot and fed talk speaking towards their first mandate controlling inflation, not their 2nd mandate)
Example: Pick your favorite fed president -“We believe with recent declines in core CPI aswell as signs of demand weakening and asset repricing that 75bps may not be necessary in coming meetings”*
*Possible but not plausible. This would be rare with what they have continued to tell us since before J Hole and where inflation currently sits. We also have the latest unemployment numbers last week that gives them more room to tighten, their words not mine.
*** Good reminder to any yahoo reading this, these are always my trades with my risk tolerance, Im not suggesting anyone do anything with their own money based on my views. ***
Edit #1
Here is what im seeing in the chart, I still have a few decently sized put positions for a little more downside early next week. They are fuck all green so Ill take the risk, but outside of a very strong declining trend monday morning Ill be looking to take profits. From there Im expecting some chop into CPI assuming there isnt any big news story that moves markets.
Any rally into or from CPI I will be watching these same buy zones for puts.
Im watching this important support, but if it breaks im going to still be patient, I dont think we get a big move without news until CPI and we also saw a similar pattern in may where we had a clean break through LoY and recovered quickly. Im chomping at the bit for steep declines but I dont want to catch a headfake.
