After getting net short for the first since September to start last week, we came into this week getting long for a 2-3 day trade going into the CPI.
As detailed here, the CPI was going to be bid under most any circumstance, barring an absolute scorching hot print, which was a very low probability. In any case, the opportunity to get long on Monday morning at the open was not so much an opportunity that had potential for massive rewards, but rather an opportunity to take on long positions for 2-3 days with very little to no risk. The stock market version of a free roll.
We took the opportunity with the intent of getting out of our longs on Wednesday-Thursday. However, something happened today that caused us to move back to cash.
That something was despite macro investors coming into today max short bonds and long the USD, there was enough flow moving their way that they were allowed to sit relatively comfortably to see what transpires into tomorrow's trading.
That's right, the markets allowed them to live to fight another day.
Upon seeing the reversal in bonds and the USD, along with the volatility in the equity markets, the decision to get back into cash was an easy one.
The fact that the markets were not able to exploit bond and USD investors today, who were front running this CPI number for multiple trading days leading into this morning's release is a definite short-term negative. More than likely resulting in weakness through tomorrow, at least.
Depending on the extent of any decline that takes place tomorrow, the decision can then be made as to what the next set of steps will be.
For now, it's time to observe how the market reacts to key levels starting with 4110 on the SPX.
S&P futures down 19 points tonight. Nasdaq down 82.
Goodnight.
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