What to expect headed into Thursday’s monthly inflation report

By Jani Ziedins | End of Day Analysis

Oct 10

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The S&P 500 skidded another -0.8% Monday as investors continue reacting negatively to Friday’s fairly positive employment report. As I wrote previously, these market reactions are rarely one-day events and today was no exception.

Economic headlines haven’t changed in a meaningful way over the last several weeks as inflation remains stubbornly high and the measurable fallout from the Fed’s aggressive rate hikes have yet to be felt by most of the economy.

Later this week we get September’s inflation report and no doubt that will drive the next big move in the stock market. A material slowdown in inflation and stocks are off to the races. Remain near existing levels and stocks will tumble. (And God help us if inflation surges to new highs!)

With the latest inflation readings just days away on Thursday, that leaves the market in a holding pattern until then. Since Friday’s selloff put the market back into a half-empty mood, that likely means further weakness near recent lows, but don’t expect a crash until after the inflation data is released on Thursday. (If one is going to happen.)

Last week got off to a great start. We bought the bounce early, collected a few bucks after it started stumbling Thursday afternoon, and now many of us find ourselves short following Friday’s big tumble.

At this point, there isn’t a lot to do other than lower our trailing stops to at least our entry points and then start looking for the next bounce.

If we get a decisive bounce Tuesday, it could be time to start taking profits in those short positions. That said, I don’t expect anything big in either direction until after we get Thursday’s monthly inflation. The most likely trade for Tuesday is a continuation of Monday’s exhale that tests the 2022 lows ahead of the inflation data.

Hold shorts Tuesday and see what happens. If this bounces decisively, we cover and go long.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.