Date: June 10, 2022

Damaging The Bullish Case

The seesaw stock market ended on Thursday as the up, down, up, down gave way to strong selling in the afternoon. The recent short-term trading range which I thought would resolve itself to the upside instead broke lower and it was an ugly day for the bulls with 90% of volume coming in stocks moving to downside. I often get asked why something happens and the truth of the matter is that it is never 100% clear. However, in this case, it looks obvious that the market either became even more concerned about today’s CPI inflation report or something was leaked. The likelihood is that the CPI report will come in hotter than expected and then the market will focus even more on next week’s PPI report which is inflation at the producer level versus today’s consumer.

Interestingly, bonds and gold were very quiet during the decline and I always find it telling to see how they behave when much anticipated economic numbers are released. The question now will turn to whether this is the first real pullback off the May 20th bottom or the beginning of a new leg lower for stocks. The answer isn’t clear today, but should be within the coming few days.

The S&P 400 and Russell 2000 have led the markets lately which doesn’t square with a stock market that is turning much lower. Those two “risk on” indices were led on the way down and have been trying to lead during the bounce.

Jay Powell, the Fed and now Treasury Secretary Janet Yellen continue to do the walk of shame for completely missing the entire boom in inflation. It’s the latest in what has been an embarrassing track record for what is supposed to be the most  brilliant bankers and economists on earth.

On Wednesday we bought levered inverse NDX and sold levered NDX and Russell 2000. On Thursday we bought levered NDX and Russell. We sold VGK and levered inverse NDX.


Paul Schatz, President, Heritage Capital