Target Achieved – Inflation Report Looms

Good Afternoon:

• • Apologies for the late update today, as I am traveling for a few days. I am writing this update from my phone, so I will correct any typos later tonight when I have computer access.
  • I am pleased to say The Founder’s Group followed yesterday’s plan, which materialized perfectly. But we scaled back to a runner again at 3975, though we do not have a formal sell signal yet.
  • The market closed on the high, just above our 3075 target, bullish for the session and week thus far. But our dilemma at the close was that the CPI Report comes out pre-market tomorrow (Thursday). We are forced to accept the results before the market opens – which can be tough with options that only trade in the New York session.
  • The rally indicates that the market expects the confiscatory inflation rate to trend down again for December, even if fractionally. No matter that the government reports are backward-looking and understate what the average consumer experiences by half.
  • Being half Irish, I am always alert to mischievous Leprechauns, not to mention Murphy’s Law. Regardless of the consensus numbers, there is still a lot that could go wrong with the report. Even if the information is positive, market reaction could be one of those “buy the rumor, sell the news” events.
  • Our MTF and Cycle Composite Forecast (see the chart in yesterday’s post) calls for a reversal down in the next 24 hours, a time window that includes all of tomorrow and Friday morning.
  • The reversal might only last a few days but could also begin the final leg into the anticipated and important February Hurst Cycle low. Though I don’t talk about them much, our MTF forecast reversal dates are accurate about 85% of the time. But that also means they miss the mark 15% of the time. So we need to confirm the reversal with the price action or a sell signal.
  • As with most economic reports de jure, I would rather sit it out. There will always be another train leaving the station.
  • And the market already had a nice run off the October 13 low, which is a reasonable tipping point into the nominal, synchronous cycle lows ahead.
  • The anticipated trough coincides with the early February Fed meeting and rate announcement.
  • Ideally, we can sell the runner in the morning, perhaps with a parabolic jump right into the next target at 4012 – 4025. Or, on a dip to the five-day line, maybe add to our existing position if the line holds. If I were not traveling, I might have tried to do both.
  • Let me emphasize that the market has performed well, and we don’t have a sell signal. But there is nothing worse than knowing we could have sold today while the sell signal triggers on a 100-point gap lower at the NYSE open tomorrow.
  • As one of my mentors beat into my head, “when in doubt, get out.” This practice is even more meaningful when you are protecting profits. Keeping the small runner today is a good compromise.
  • Remember that these are tactical, professional trading moves. A typical swing trader should take the buy and sell signals with a reasonable trailing stop, such as a few ticks below the 5-day line.
  • And there are at least a few points left above 3975; we have the 4012 measured move from balance up to 4025, where the 200-day line and bear down trendline from the January 2022 Bull Market peak converge.
  • Of course, the lines above also limit gains, as sellers will be present. Never a dull moment, right?
  • My next update will be tomorrow night.

A.F. Thornton