VRA Weekly Update: Inflation Running Hot. Sell The Rumor, Buy The News. Bear Trap.

Good Thursday morning all. Another “must watch” monthly economic report was out yesterday as the April CPI came in hot at 0.8% vs consensus estimate of 0.2%. But let’s be real…like the April jobs report, none of these monthly reports are actually “must watch”. They are heavily manipulated and rarely reliable (as we regularly discover when adjusted data is released). But yes, no surprises here, inflation is running hot. That’s the effect that >$22 trillion in fresh global stimulus/QE and unprecedented currency inflation (aka fiat money printing) has on an economy.

This is one of the times that we agree with the Fed. While inflation will continue to run hot, for at least the next several months, this surge in prices will be “transitory”. We see this as a “sell the rumor, buy the news” event, meaning that many of the commodities that have hit extreme overbought on steroids will begin to fall in price on this news, while tech/growth stocks and the broad market will rally on this news. And interest rates will continue to do little on the upside, while preparing for their next move lower. AKA gravity. And remember, rates were MUCH higher during the best bull market for Nasdaq in history; 1995–2000, averaging >5% 10 yr.

BTW, if you have a used car or truck that you’ve been wanting to sell, both rose in price by 10% in April. Thats a remarkable one-month surge in used vehicle prices (even moreso if this figure is believable)

Yesterday had the feeling of capitulation in tech. We’ll find out again this morning. Remember, hedge funds are “aggressively” short big tech, based on reports just released. Rarely are the majority of hedge funds on the right side of trades. 

This bear trap looks to have been well constructed. Hedge fund short covering combined with a deeply oversold tech sector, an investing public that is back in the market and return of massive share repurchases…not to mention the gazillions in stimulus/QE…will lead the next move higher.

We saw “absolute” signs of capitulation in yesterdays trading. Covered these in detail on my podcast yesterday.

Here’s a few:

-We’re in just the second year of a new bull market. Extremely bullish macro set-up in tech. Sell-offs in tech are a buying opportunity. Tech will lead for “years”.

-Put/call ratio traded over 1, most of the afternoon

-The VIX just rose 44% over 2 days.

-The TICK hit its worst reading in 20 years.

-Nasdaq, QQQ and SMH are hitting extreme oversold on VRA momentum oscillator (stochastics), while hitting heavily oversold on most all others.

-Sentiment Surveys have flipped from bullish to neutral/fear. This is the case in both AAII and Fear & Greed (now at 37).

-And this repeating pattern has worked like clockwork; prior to each fresh round of stimulus, market weakness has served as motivation for congress to get these deals done. On the table now is $4 trillion in fresh stimulus.

Remember, rising rates and rising inflation are “bullish” for stocks, certainly early on. For the statistics on this, check out our update from last week.

Why We Should Pray for Higher Rates.

https://kipherriage.medium.com/vra-weekly-update-do-not-sell-in-may-and-go-away-55e565d98ef2

I’d have preferred a lower open this morning but futures flipped green an hour ago. We are either at a bottom or very near the lows.

Until next time, thanks again for reading…

Kip

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