This 3 Step Process for Trading Trends

The market rejoiced when the latest inflation update came out last week... As my colleague Karina Kovalcik noted yesterday, the Consumer Price Index ("CPI") showed a 7.7% year-over-year gain in October.

Today's 'Robots' Haven't Replaced 1980s Investors By Marc Gerstein, director of research, Chaikin Analytics The market rejoiced when the latest inflation update came out last week... As my colleague Karina Kovalcik noted yesterday, the Consumer Price Index ("CPI") showed a 7.7% year-over-year gain in October. And stocks ripped higher in response. The CPI result was a bit lower than the projected 7.9% increase. And notably, it was also below the inflation gauge's 8.2% reading in September and roughly 9% peak in June. In short, the Federal Reserve's inflation-fighting strategy seems to be working. That shouldn't surprise regular Chaikin PowerFeed readers, though... We covered the Fed's strategy a little more than a month ago. On October 11, I wrote...   I realize that what I'm about to say is hard to accept. But right now... The Fed is getting it right. I'm serious. And we have data to support that claim. Long ago, fighting inflation might've seemed impossible... We didn't yet fully understand the way money supply, interest rates, and inflation related to one another. So the Fed of yesteryear was trying something new and unproven. That's no longer the case... You see, the central bank now has a time-tested playbook. And the playbook is working. The good news is that the Fed broke the CPI's upward momentum. However, the war against inflation isn't over yet. As you'll see today, another big battle lies ahead... Recommended Links: Here's What You Missed Yesterday Marc Chaikin unveiled a new cash vehicle 50 years in the making... made his biggest new prediction in 50 years... and explained how it could double or triple your money if you move your cash immediately. Click here to watch (includes free recommendation). 33x the Performance of the S&P 500 Lifetime cumulative returns as high as 3.5 million percent. Virtually recession-proof and inflation-proof. Everything you could dream of in an investment can be found in one extraordinary sector you've likely never considered. Find out EXACTLY where when Dr. David Eifrig, MD, MBA, makes the most important message of his life. Click here for details. I explained last month that we're dealing with "demand-pull inflation." That just means too much money is chasing an inadequate supply of goods and services. This time, the excess supply of money came from all the stimulus in the wake of the COVID-19 pandemic. And with shortages of all sorts of goods, that money chased limited supplies. The Fed (or anyone) can't just snap its fingers and fix the problem. It can't just create more goods and services to match the excess supply of money. So the Fed is doing the only thing it can... It's raising interest rates to suppress the money supply and demand for goods and services. Unfortunately, demand suppression means companies generate less revenue. They try to protect profits by cutting costs – often through layoffs. That's the essence of a recession. We don't know how much more economic pain will occur before the money supply and economic activity realign. But we can turn to history for some critical clues... Specifically, I'm talking about the early 1980s. That's the last time inflation caused this much trouble in the U.S. And here's how things played out with the CPI back then... The shaded areas on the chart indicate recessions. As you can see, we experienced a six-month recession in early 1980. Then, we endured a longer recession well after the Fed won the first round of its fight against inflation. As mid-1982 approached, investors still hated inflation rates above 5%. And even worse, many folks feared that inflation would soar back up to double-digit percentages. Then, on August 17, 1982, Salomon Brothers Chief Economist Henry Kaufman – nicknamed "Dr. Doom" for his harsh prognostications – told the world that disinflation was real. Many folks didn't believe it at first. But before long, enough investors bought into the idea to launch stocks into a mega-rally that lasted for the better part of 40 years. That rally got started near the end of the longer recession in the early 1980s. And it was a little less than two and a half years after inflation started to soften. In other words... investors remained wary for a very long time. This is where the 1980s-era precedent gets murky... These days, we're seeing bursts of hope and caution. The markets swing wildly on every little bit of news. And it's hard to tell how much is being driven by investor sentiment alone. "FOMO" – the fear of missing out – is much more prominent today than in the 1980s, too. With information traveling so rapidly, no one wants to be late to the recovery. There's another new twist these days... The markets didn't have as many institutionally unleashed "robots" back then. The company I worked for in the 1980s had mandatory rounding conventions for estimates. My manager would've yelled at me if I estimated $1.04 per share instead of $1.05. It's much different today. If a company reports $1.04 per share in earnings versus a Wall Street consensus estimate of $1.05, the stock might fall off a cliff. A similar result could happen if the CPI isn't "perfect" in next month's update. For example, imagine what might happen if it comes in at 7.8% in November versus a 7.6% estimate. Sure, the world has changed. But the thing is... Sentiment still plays a major role. That's true even if it's robot sentiment. And history tells us that investors can stay skittish – even when the worst is over... That was the case with human investors in the 1980s. It's still the case with human investors today. And I bet that it's true for all the robot investors as well. Keep that in mind. Don't blindly rush back into stocks after one good inflation report. Good investing, Marc Gerstein Market View Major Indexes and Notable Sectors     # Hld:     Bullish     Neutral     Bearish Dow 30 +0.13% 10 19 1 S&P 500 +0.85% 152 267 80 Nasdaq +1.38% 35 48 17 Small Caps +1.54% 623 879 381 Bonds +1.62% Communication Services +1.48% 4 12 6 — According to the Chaikin Power Bar, Large Cap stocks and Small Cap stocks are Bullish.. Major indexes are mixed. *  *  *  * Top Movers Gainers SIVB +9.18% CDAY +8.30% MTCH +6.66% SBNY +6.61% WMT +6.54% Losers COF -7.18% ALB -6.48% SYF -4.85% HUM -3.23% UNP -2.90% *  *  *  * Earnings Report Reporting Today Rating Before Open After Close TJX CPRT, CSCO PGR LOW, NVDA BBWI No earnings reporting today. Earnings Surprises WMT Walmart Inc. Q3 $1.50 Beat by $0.18 HD The Home Depot, Inc. Q3 $4.24 Beat by $0.12 AQUA Evoqua Water Technologies Corp. Q4 $0.49 Beat by $0.17 *  *  *  * Sector Tracker Sector movement over the last 5 days Communication +8.52% Information Technology +7.58% Discretionary +6.27% Real Estate +4.89% Materials +4.79% Financial +2.87% Industrials +2.75% Utilities +2.63% Staples +1.17% Energy +1.07% Health Care +0.16% *  *  *  * Industry Focus Biotech Services 72 67 10 Over the past 6 months, the Biotech subsector (XBI) has outperformed the S&P 500 by +24.04%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #6 of 21 subsectors and has moved up 1 slot over the past week. Top Stocks VIR Vir Biotechnology, I VRTX Vertex Pharmaceutica RCUS Arcus Biosciences, I *  *  *  * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, click here. You're receiving this e-mail at diansastroxz.forex@blogger.com. 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