Hey There Income Hunter,
Well, as we have seen all year, whenever the market is leaning one way … take the other side of the bet.
After the rally we have had the past week, the market was sure we would get a weaker CPI print … but instead, the food component printed the highest y/o/y gain since 1979.
Not tasty!
- US CPI YOY ACTUAL 8.3% (vs 8.1% FORECAST)
- US CORE CPI YOY ACTUAL 6.3% (vs 6.1% FORECAST)
I closed a couple of bearish spreads I had on including a SPY trade that I put on yesterday and closed for 95% gain.
Today, we’ll look at a couple of others I am holding because the odds are rising for a Fed hike next week of 1%, and that may cause FURTHER meltdown …
Yesterday’s SPY Option Flow
Coming into yesterday, I was focusing on the 410 area of SPY as good resistance because the rally from 390 to 410 was completely driven by put selling …
There was not any real customer buying of calls.
This is a critical input because on any bearish data or news that tells you the market could drop quickly – and it sure did.
The chart below is from Spot Gamma, which pulls in live option data from all the exchanges and breaks down the put and call flow throughout the day.
Intraday chart for S&P 500 Index ETF (SPY).
Notice the right axis, which shows the amount of call and put buying throughout the day. The number represents the net amount of options traded in dollars of delta.
Put buying dominated – and this is also a critical indicator as we head into OPEX on Friday.
In one day we shifted from a market dominated by calls to one dominated by puts.
Housing Stocks Crushed
The poor CPI number weighed heavily on housing stocks. One of my top shorts in this environment has been the iShares Home Construction ETF (ITB) …
ITB was down 6.5% yesterday and it is a great short because the holdings are companies that are concentrated on the single family residential real estate sector, which is the weakest.
ITB broke the 100 dma on good volume and any bounce is a sale as housing will continue to weaken until the Fed pauses its tightening policy. After yesterday’s number they won’t be in any rush.
The other sector to keep an eye on is high-yield via the iShares High Yield Corporate Bond ETF (HYG) …
We are at the part of the cycle where we could begin to see an acceleration in defaults and in that environment you see HYG trade down below $70.
Bring It Home
The most exciting market event for me will now be the Fed’s inevitable pause in their tightening cycle …
I think yesterday’s CPI number will get us there within weeks because inflation won’t go away. Between higher prices and a global energy crisis, no matter what the Fed does we are in for a really bad winter …
If you know their agenda then you can make a lot of money getting out in front of the massive trends we see for the next few weeks , months and years …
We will reveal our trading strategies and take you through our process to provide you with all the benefits you would get if you paid a fortune to a hedge fund.
Do not miss out on this, because it really is a once in a lifetime opportunity – and you’ll see why.
Until then …
Live an dTrade With Passion My Friend,
Griff