On Wednesday, the latest Consumer Price Index (CPI) report showed inflation burst higher to 9.1%.

That’s a 0.5% increase from June with the monthly rate jumping 1.3%.

If annualized, this sort of increase would see inflation reach crazy double-digit figures.

Within the last 11 months, inflation has risen in a total of 10. Now, inflation runs at six and a half times the rate it was at the start of 2021.

Later this month, we can expect at least a 0.75% rate rise at the Fed’s meeting. And the potential for a full 100-point rate rise is growing by the day.

Clearly, inflation is accelerating. And usually, these numbers lead to all sorts of dire scenarios…

A Market Shift

Yet, despite Wednesday’s dreary data, the market reacted differently to what many of the talking heads predicted.

Many of them looked confused as they tried to justify the market’s action…

Instead of another round of huge falls, many of the major indices and stocks did the opposite.

Both the Nasdaq and S&P 500 closed higher than they opened – and within a whisker of where they closed out the previous day.

It was a similar story with some of the heavy-hitting stocks…

Apple (AAPL) and Amazon (AMZN) climbed off their lows, while Tesla (TSLA) closed out the day almost 2% higher than the previous day.

With food inflation running at over 10%, rent rising at its fastest rate in over 35 years – not to mention gas prices up 60% in the last 12 months – it should be the perfect recipe for these kinds of stocks and the broader market to tank even further.

But after another round of negative data and sentiment, Apple’s closing price represented a 13% gain from its June low.

Of course, it’s not all bad news out there…

The unemployment rate has flatlined at 3.6% for the last four months. And last week’s job figures showed the economy is still adding jobs and not shedding them.

In this case, adding over 100,000 more than the 268,000 forecasted.

The Downtrend Is Losing Momentum

However, it does show that after losing one-third of its value since its November 2021 peak, selling pressure on the Nasdaq could finally be starting to wane.

And, while the S&P 500 has fared better (having lost 25% since its peak) it too could be seeing signs that the bears are also exhausted.

You see, this year has been brutal for the bulls.

Having bought into each dip – just like they did successfully in the almost two-year rally that ended last year – the market instead in 2022 has turned around and buried them.

While the market has rallied multiple times against the major downtrend, each rally has petered out at a lower high, before then falling again.

However, so far having been on the right side of the trade, the bears might be about to get their taste of the medicine.

Although it’s only a couple of days since this latest data, when the market reacts the way it has, it can be a signal that the downtrend is losing momentum.

And, more importantly, that a change in direction could soon be in the cards.

That’s why as we head into the earnings season, I’m being as pragmatic as ever… And trading fewer positions than I was at the start of 2022.

Because with so little conviction in the market (and both the bulls and bears clearly exhausted) we’re going to see plenty of volatility and trading opportunities ahead.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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