Markets Get No Loving on Valentine’s Day Inflation Massacre

Related imageHappy Valentine's Day!  

There's a massacre for the markets as we're down 300 points in a massive failure of the strong bounce lines which we predicted for you a week ago, which are:

  • Dow (/YM) 24,100 is weak and 24,700 is strong
  • S&P (/ES) 2,610 is weak and 2,670 is strong
  • Nasdaq (/NQ) 6,440 is weak and 6,580 is strong
  • Russell (/TF) 1,480 is weak and 1,510 is strong

We needed to see strong bounces on all 4 indexes taken AND HELD for at least a full day before we could safely say the correction is over (it's not).  

Strong inflation numbers are killing us this morning (CPI), keeping the Fed on the table for more tightening.  There had been no real news in the past week to change what were obviously overbought conditions 2 weeks ago so there was no logic in racing back to the overbought conditions – though we're still a good 5% below the highs.  If you almost had a heart attack last week, this is a good time to consider hedges and a great example can be found from the way we adjusted our Money Talk Portfolio (which we discussed on Feb 1st in our Morning Report) by adding a Nasdaq Ultra-Short (SQQQ) hedge that has gained $5,900 in two weeks, almost exactly offsetting half the damage to the portfolio – as intended.  That trade idea was:

SQQQ is the ultra-short Nasdaq ETF that's a 3x inverse of QQQ.  So, if the Nasdaq drops 10%, SQQQ goes up 30% (in theory, it's not perfect).  I'm going to add the following trade as a hedge and WE EXPECT TO LOSE MONEY ON THIS ONE – it's like life insurance, you pay for it but you hope that, each year, it's a waste of money!  

  • Buy


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