5/11 Best Idea For The Week Ahead

Things are looking alright for the moment in terms of where we sit above all the key moving averages, but this coming week we have probably the biggest CPI report of the Biden era. We are now 6 months away from an election and inflation seems to be roaring back to life. A sustained move higher in the coming months could be a knockout punch to his re-election bid. If this CPI report does not show any cooling down, the market is probably in for another breakdown like we saw a month back and a second period of weakness this year. On the other hand, should CPI surprise positively, the market will rejoice and we will carry on higher. So I would take the next couple sessions and think about your positioning, let go of the things you’re possibly concerned with, raise a little cash in case you’re worried, and see what happens.

TOS was down for maintenance this morning so I’m having to use a different chart below. As for the SPY, we sit right over the 8 weekly, it looks good. Still, we very well could be forming a lower high still, and that is why I’m not super bullish until there is some confirmation of a new high.

Short term, as I’ve said for weeks, I would not have any calls expiring within 3 months with size you are concerned with losing. The last time the market broke down from a big uptrend in 2023, I showed you how we had a small bounce similar to what we’re seeing now and ultimately resolved lower. So just because we had a bounce here and everyone is back to being bullish, I would not rule out a second leg lower. The data this week is certainly a potential catalyst lower. Markets are dynamic and if your thesis isn’t constantly evolving alongside the price action, then you’re doing it wrong. If you’ve been here long enough, you know my style, I don’t have any thoughts, I just let the moving averages dictate my thoughts. That is the only way I was able to pinpoint that decline last month pretty much to the day, it certainly wasn’t my macro knowledge. As for the bigger picture, I would not be concerned with any longer term positions you hold, yet. I suspect whatever happens this week, good or bad, we will most likely be heading into the election later this year with markets at or near all time highs. In the recent era, we were at highs in the last 2 elections, 2016 and 2020. In 2012 we weren’t at all time highs, but we were at the highest point in 5 years.

This week’s best idea is a household name, I usually don’t like to highlight such names but I feel like the valuation has gotten to an extreme and I am going to draw up a risk reversal to put on a free trade to try and steal shares lower while playing a potential normalization in their business. Worst case, you end up buying on the greatest businesses of all time for a decade low price.