0.1% Equals Minus 214

The main thought process for Wednesday trading was based on a 0.1% miss on the guess for the government’s guess on the CPI.  When the report came out an hour before the market opened, the futures were shining with gains and a positive outlook for the day.  Then the all important “Core” CPI was announced at 0.3% versus expectations of 0.2% and the waterfall started.  

If you really think that the market dropped on Wednesday due to this report you go right ahead and believe it but the market would Not go down if it didn’t want or need to go down.  How does it make any sense that the report coming in at one tenth of a point higher than expected drive prices that much???  The fact is that it really can’t but the market has been hoping for a Fed slow down in rate increases and anything that weighs on that is perceived as negative or bearish.  

At any rate, the market opened with a thud and fell even more over the next couple of hours when the NYSE index had dropped enough to invoke trading collars, at which time the market immediately stopped going down.  The whole collar idea is rather disheartening to the bears but is a somewhat reasonable thing for true investors.  They talk about how the market needs to protect against volatility but that doesn’t count when the market is volatile going up, then it’s ok.  But, I digress…

The stock market flopped and chopped around most of the rest of the day but ended lower by about 1.75% across the board, actually led by the Dow.  The market has gone down a “little” and the market analysts are still calling this a buying opportunity so we think there is ample room to drop from here.  It may not be a straight down affair but so far it has stunned many after last week’s closeness of the Dow to its old high.

The move over the past week has mostly been in the broader market and finally the Dow is participating in the move.  This 200 point move gives some fear to the general public, but it does Not make them sell.  The prices are still high and this is just a minor pullback.

The inflation news gets the “Fed is tough” talk going again.  The Fed is not tough but the reaction today was pure “Fed is tough” trading.  The dollar was higher and bonds were lower and the stock market, well, you know, it was kicked hard.  

We hope the advice to “Sell in May and go away” didn’t give you license to wait until the End of the month to sell but we still think there is more to go on the downside.  We certainly don’t think the market has felt any pain so far, and with the modest run up over the past three years, there should be at least some pain before this is over.  And, we don’t think it can be over in a week compared to a three year build up.

The mere fact that the futures contracts are up overnight again is enough for us to remain bearish—the players do not have any fear.  Until we see some fear, as in price drops, we will be happy to be out or short.

Be careful out there…

Dow Industrials:  11,205.61  -214.28
RYVNX:   20.90
RYAIX:  23.39
TLT:  83.08
BEGBX:  13.48  (the dollar had a good day)