[OP Ed. Note: This Editorial Was Drafted Without AI]

Yo Pit Crazies,

I called for a big CPI move, and we got one. The S&P 500 fell 1.1% today and snapped its longest run without a 1% drop in more than six years.

The inflation number was really just part of the puzzle, though. The second part is that the AI pot of gold might have a hole in it.

I went live yesterday to talk about the CPI and PPI numbers for my Two Way Trading system. We’re in a complicated interest rate situation, so stocks are more vulnerable to big moves, and low trading volume can make them move faster.

The market didn’t like the hotter CPI number. Prices rose 3.7% from a year ago when Wall Street expected 3.6%, and the core number (which strips out food and energy) ran hot too.

Oil gets a lot of the blame, but that almost doesn’t matter. Many stocks, and most people’s daily lives, touch the price of gas at the pump. AAA had the national average at $4.37 last week, up from $3.16 a year ago.

The statistics say oil volumes out of the Persian Gulf are climbing back toward prewar levels. But the Strait of Hormuz still isn’t 100% in U.S. control. Eleven commercial ships got attacked in and around the strait in the first 10 days of October.

10-Day SPY Chart

I thought we’d get numbers close to expectations, and we mostly did, about a tenth of a point hot across the board. Traders still didn’t like the news. Odds of an October Fed rate hike jumped above 50% right after the print before settling around 37%.

CoreWeave (CRWV) Had a Bad Hair Day

It’s possible for a company to overleverage. Basically, it buys too much stuff on credit and runs out of money before it all gets better. CoreWeave (CRWV) is the poster child for that right now.

The stock dropped about 16% today, and its bonds now yield close to 15%. When lenders demand that much, they’re pricing in real doubt about getting paid back.

It’s the same reason Oracle Corp. (ORCL) is making near-term lows. Oracle fell almost 9% today. It burned $23.7 billion in free cash flow last fiscal year building AI data centers, and S&P cut its credit rating to one notch above junk.

Will the AI revolution pay the bills these companies are running up? The jury’s still out, but the story keeps making the rounds and it won’t go away.

I follow and own a lot of stocks in Capitol Gains, and every one of them that borrows money is trading at year lows. There’s definitely a risk exodus now that Treasuries pay 5%.

The Market for Volatility got a lift today

I’m running a practice test for a new product I’m building around changes in daily volatility. So far the results are good, six for six, but no home runs yet. The idea is to lean the way volatility is going and close when the bucks come in.

It’s a unique indicator. What I want to see is a change in demand for SPX options in the VIX window (about 30 days out, the same stretch the VIX measures).

Today I saw a big change, from the blue line to the yellow line. But SPX IV (implied volatility, basically the price traders pay for option protection) didn’t close at the dead highs.

The Edge Hunter Skew-o-later with Livevol

Traders didn’t bid the options up into the close. That likely means they want some confirmation from the PPI tomorrow. Will we get our reversal off today’s selloff?

Possible. Most economic data days run an early reversal after the initial print. I expect another volatile day, and I trade it for my students every week.

Check out how to trade it here.

I hope this was helpful,

AG