Tomorrow is PPI / Core PPI inflation data which will be a big mover of bond yield and thus the market as a whole (inverse correlation between bond yields and SPY generally in this market context).
Basically the situation we have is this: the US labor market is good and healthy, which means the Fed can’t use that as an excuse to cut interest rates. At the same time, inflation is still a bit high which also means the Fed can’t really justify cutting rates.
So that’s why economic data, like the PPI one we get tomorrow matters. Because if the data shows inflation is moving up, then that means interest rates will be higher for longer and that hurts a lot of stocks (and shows up as rising bond yields). If the inflation data shows its coming down, then the Fed may still be able to cut rates at some point this year and the stock market likes that and usually rallies.
So let’s see what the data is and that will likely move the market for a true bias tomorrow. IF the data is good and we rally, the VIX can melt hard from these levels so could be a big up day. If data is bad and bond yields spike further then the market may tank pretty good.
EIX is on watch for possible disaster this week as it’s being blamed for some of the fires in California. Usually in these situations people try to find something to blame and then attack it and sue to get money and since EIX has a bad balance sheet (tons of debt and very little cash) they may be responsible for billions in damages that they can’t pay without issuing equity to raise the cash. So could have a total meltdown if they get really blamed and attacked. Kind of a binary situation where it will either just drift and chip or it could get cut in half or more.
Quantum names getting closer to a bounce, the longer and lower they go the better the bounce will be. Remember there was so much froth and longs off sides that this unwind is justified and was a smooth ride down. Now we need people to get over aggressive short and when the stocks stop moving down and feel jumpy, thats when you can get a nice squeeze.
I’ll keep an eye out for any liquidity traps tomorrow. Those have been working well in this market as long as you take a piece of the move and don’t over hold. 20-30% ramps and move on is what I’m usually doing. It’s also a good practice for anyone who wants to have a nice list of names to just put any ultra high volume movers and gainers on a list and then wait a few days and see where they are at.
Every liquidity trap STARTS as some crap stock that is up like 100-500% with tens of millions or hundreds of millions of shares trades – like PHIO today. Then they fade a bit and the volume goes down by 90% for a few days, and then they start to perk up and get jumpy and then they can have a squeeze as the volume comes back in and shorts cover while liquidity is thin and it moves the price up. So a name like PHIO which was a big runner today should go on a list and then in 2 or 3 days it may have set up for a liquidity trap, and if you have a few of these on watch you can get a lot of good set ups sitting right there for you.
Thank you, Chris!