May 10th 2023

Is The Market Headed For A 14% Collapse?

If you weren’t having fun trading through inflation or the banking crisis, we now have the debt ceiling to contend with. Thanks, government officials.

By the time this hits your inbox, the Consumer Price Index report will already be released and we’ll know how inflation is tracking. Based on the chart below, we can see that we’re moving in the right direction, but can we keep the positive (or in this case negative) momentum going?

If the market is correct in its prediction, we should see CPI stay flat year-over-year but tick higher month-over-month. Although I think most people will concentrate on the Ex-Food & Energy rate, which was estimated to head lower from 5.6% to 5.5%.

Inflation has a long way to go before reaching 2%, especially if we’re only predicting 0.1% moves every few weeks, but we will take what we can get.

If that wasn’t fun enough for you, we now have a looming debt ceiling and our only hope is a deeply divided government to save us from another 2011-like collapse.

You see, much like today, back in 2011 we had a President with an opposing House and same-side Senate. Unlike previous routine moves to raise the debt ceiling, it became a partisan debate in 2011 and for the first time in history, America’s credit rating was downgraded.

For those who don’t remember, here’s how the chart played out, despite the debt ceiling being raised two days prior to when the Treasury estimated the borrowing authority of the U.S. would be exhausted.

That was a nice 14% drop!  Ouch!   The drop was fast and didn’t find support until October of 2011, and the market didn’t fully recover until 2012.  

Here’s the spooky part.  A 14% drop from current S&P 500 levels would get us down to $353 on the SPY ETF chart.  Wouldn’t you know, that’s the October 2022 low?  Could we really be headed down there to retest the lows?  Come on, government!  Please don’t mess this up!

If you’ve made it through this far into the article, I’m assuming you like what you’re reading and are interested in learning more about how I read the markets or maybe how I trade the markets.

Depending on when your email provider releases this to your inbox, you could still have enough time to join me and my co-host, Dave Durham for a live, free trade day. It’s happening today! We’re going to talk about 0 to 1 DTE options. We’ll be putting on some live trades in the morning and seeing where the market takes us in the afternoon.

Make sure you register for the event by going here.

I’ll be making a trade on a major index after the CPI report has been released. Come check it out!

If you have any questions, comments, or anything we can help with, reach us at any time.
Email: [email protected]
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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.