EB Daily Market Report - Brief Update - Tuesday, January 14, 2025
Max Pain Event Today
We will be hosting our monthly Max Pain event later today at 5:00pm ET. Room instructions have been sent out separately. I hope to see you there!
Market Update
Well, the big news today was the December Core PPI, which was flat, well below the +0.2% consensus estimate. A bigger report, however, will be tomorrow morning where we'll see if core inflation at the consumer level comes in above expectations. Currently, the consensus estimate is pegged at +0.3%. A second inflation reading below the consensus estimate would be bullish, especially for small caps. We're seeing better action today on small caps as a result of the benign inflation and I'd expect a similar result tomorrow, if Core CPI comes in below the +0.3 estimate. We'll see.
Today has been interesting. We've seen bond sellers drive bond prices lower, with corresponding yield higher, for the past month or longer. Bond prices tend to go lower either due to (1) higher inflation expectations, or (2) improving or strengthening economic conditions. The media has been treating the rise in treasury yields as a no-brainer. Most media outlets are on the inflation bandwagon. However, after a strong jobs report last week, it very well could be the latter. That's what the U.S. dollar (UUP) is telling us as well. Check this out:
Inflation eats away at currencies. The UUP is climbing, which tells me that the higher yields are quite likely due to an improving/strengthening economy, not the threat of inflation. That's also the same thing that gold (GLD) and real estate (XLRE) are telling me. They generally would significantly outperform the benchmark S&P 500 during a threat of higher inflation. It's simply not happening.
Personally, I get a lot of questions about how I trade the TNA. I try to be honest and let everyone know that I tend to be quite aggressive at times with the TNA (3x leveraged ETF that tracks the IWM). Holding into the December PPI report this morning was an example of that. It worked out and I've traded the TNA twice today. I have decided to sell 2/3 of my TNA and put the balance back into the IWM to reduce my risk tomorrow with the December CPI report. Be aware of the IWM's 20-day EMA, currently at 223.54 and key price resistance from 225.50 to 226.00. A break above that level could lead to much further gains in the IWM, while failure to clear this zone could take the IWM back towards 214.00 and that's the key support level for me.
Happy trading!
Tom