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This Week's Tricky Trade: Playing the CPI

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https://realmoney.thestreet.com/investing/stocks/this-week-s-tricky-trade-playing-on-the-cpi-16111060
 
This Week's Tricky Trade: Playing the CPI
 
A major part of the strength Monday was likely short-covering by bears who were stepping aside in case of a big rally on a soft consumer price index report. Here's the catch with that.
 
By JAMES "REV SHARK" DEPORRE
 
December 12, 2022 | 04:20 PM EST
 
The action started slowly on Monday, with breadth running about even, but it picked up steam with about 2.5 hours left in the day. A major part of the strength was likely short-covering by bears who were stepping aside in case of a big rally on a soft consumer price index report. Several strategists, including JP Morgan, forecasted a huge move should CPI come in lower than expected.
 
But a move into an event like CPI tends to be an invitation to do the opposite when the actual news hits. On the last four CPI reports, the market did the opposite of what it did on the prior day -- Aug. 9: -0.42%; Aug. 10: +2.13%; Sept. 12: +1.06%; Sept. 13: -4.32%; Oct. 12: -0.33%; Oct. 13: +2.60%; Nov. 9: -2.08%; Nov. 10: +5.54%
 
This time there is some extra complexity to the situation, because the CPI is immediately followed by the Fed interest rate decision on Wednesday. It is a near certainty that the Fed will not proclaim victory at this time, and it is very likely that they will stick with the 0.5% hike that has been signaled since the November CPI report.
 
I will discuss this more in the morning, but if the market does celebrate a soft CPI report on Tuesday, then there is a greater likelihood that Fed Chair Jerome Powell will sound more hawkish during his press conference on Wednesday. The Fed does not want a wildly bullish market at this point, and will likely focus on the economic challenges that remain.
 
The bulls are likely feeling good about the action on Monday, but it complicates the trading for the rest of the week. As soon as the CPI number hits in the morning, we will need to start focusing on the repressions of the Fed meeting the next day.
 
Have a good evening. I'll see you tomorrow.