Stocks and Inflation Soar!

Yesterday we got a hotter-than-expected CPI report, which caused the markets to sink 500 points prior to the market opening, as expected, but then the market came roaring back. The markets rebounded and closed up nearly 3%, with the Dow 30 being the biggest winner of the day. Yes, a hotter-than-expected inflation number was reported and the markets flew higher! Oh, and mortgage rates rose to the highest level since 2002.

Here’s a chart of the DIA ETF, representing the Dow 30, and look at the volume! We haven’t seen that level of volume since August. Yesterday’s candle also engulfed about a month’s worth of previous data (blue box). You don’t see a daily candlestick like that every day.

Yes, the CPI went down year-over-year, but only by 0.1%. It actually went up month-over-month showing that inflation is far from under control.

There are several financial experts reporting that this data will likely be the final stronger-than-expected report and we will start to see prices retreat quickly from here on out. At the same time, you can read stories about persistent high inflation that will cause the Fed to be even more aggressive with future rate hikes. Which experts are right?

My word of caution is to remember the two-day gains we had last week, only to see them disappear in a few days. That said, what makes this potentially different is that we almost got up to the recent swing high in one trading day. Given our history of trading on Fridays, I wouldn’t be surprised to see flat trading or even a down day, but if we can get a follow-through on Monday that can break the recent swing high, we could see this rally stick. That does not mean the bottom is in – another headline I read yesterday.

I have been talking about oversold conditions and how the market is historically bullish from mid-October into the end of the year, but I’m not ready to call a market bottom though. I think we will continue to see volatile trading sessions as we saw yesterday.

If the market continues higher, there’s one company that could lead the charge, providing it breaks out of its trading range. Keep reading to find out which stock I’ll be stalking in the weeks ahead.

Everyone’s favorite tech company, Apple (AAPL) has traded positively in the 4th quarter in 32 out of the last 41 years.

Apple is nearing a positive MACD crossover (blue circle below), which can also be a bullish sign for the stock. The previous MACD crossovers have mostly coincided with bullish movements in the stock price. That’s another reason to watch what Apple does in the coming days.

Let’s tame our excitement some. It is a bear market. Apple still hasn’t crossed over its 20-day moving average (orange line on the chart above) and has been trading in its current range since mid-August. Apple reports earnings on October 27th, but if Apple breaks out, look for the rest of the market to follow.

Let’s see how the market does over the next couple of days and then we will see if it’s time to get excited about today’s upward move.

I will be in Vegas with some of you next week at the Millionaire’s Trading Club event. I look forward to seeing you there either in person or virtually!

Have a great weekend!

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Guest Writer, Filthy Rich, Dirt Poor
Editor, Wealthy Investor Society

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