Today could be a wild session for the stock market…
The consumer price index (CPI) – a widely followed measure of inflation – for November will release at 8:30 a.m. ET.
And today’s report may give traders a glimpse at the future direction of interest rates.
A “hot” report showing persistent inflation will keep pressure on the Fed to raise interest rates even more. A “cold” report showing a lower-than-expected CPI, could give the Fed a reason to pause.
Either way, today’s number is likely to spark a big move in the stock market – in one direction or the other.
Take a look at this chart of the S&P 500…
The blue arrows point to the action following the past three CPI reports. Those were some of the biggest one-day moves we’ve seen all year.
The stock market was rallying going into the release of the CPI report on September 13. The index lost 180 points that day – the stock market’s worst day in two years.
And the S&P 500 was falling going into the October 13 release of the CPI report. The index gained 90 points following a hot report. It gave up most of those gains the next trading day.
In November, the CPI report showed inflation was cooling off. The S&P 500 exploded 200 points higher – logging the best day of the year for the stock market…
So today’s report is likely to be the catalyst for a big move.
The question of course is… Which way? I don’t see an edge to either direction.
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The S&P 500 is trading near the same level it hit following the November 10 report. It has neither gained, nor lost ground.
There are plenty of bearish technical indicators that support a move to the downside. But seasonal factors and investor sentiment (a contrary indicator) support a bullish move.
Betting on today’s direction seems to be nothing better than a 50/50 proposition. There’s no edge. And when there’s no edge, it’s better to not make the trade.
Whenever there is the potential for a big move in the markets, traders feel pressured to take a position. Just think of the gains you’ll be missing out on if you don’t place a trade.
That’s the gambler’s thought process – focusing on the reward and ignoring the risk.
Successful traders focus on risk. We look for conditions that reduce our risk and increase the probability of a profitable trade.
If we can’t find those conditions, we stay on the sidelines. And we ignore FOMO (the fear of missing out) on a trade.
Today is likely to be a wild day in the stock market. Gamblers who bet on the right direction will profit. Gamblers who bet wrong will lose.
But most traders are better off avoiding the casino – for today.
Best regards and good trading,
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Jeff Clark
Reader Mailbag
In today’s mailbag, a Jeff Clark Trader member shares his thoughts on Jeff’s recent essay on gold…
I see the price of gold reaching new heights as confidence in the dollar wanes. And when markets are down, historically there’s a tendency to buy gold as a safe haven.
– Derek G.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].