• S&P 500 (SPX) +1.06%
• Nasdaq Composite (COMP) +1.27%
• Russell 2000 (RUT) +1.23%
• Dow Jones Industrial Average (DJI) +0.71%
• Nasdaq-100 (NDX) +1.20%
• West Texas Intermediate (WTI) +0.25%
• U.S. Dollar (USDXY) -0.61%
• iShares 20+ Year Treasury Bond (TLT) –0.82%
• Bitcoin (BTC) +3.48%

Yesterday was another solid session, building the best four-day rally we’ve seen in some time. Market breadth was overwhelmingly positive; the only glaring issue was the new 52-week lows versus highs on the NASDAQ Composite.

Market Breadth	NYSE	NASDAQ
Advancers	2,430	2,955
Decliners	771	1,660
New Highs	42	58
New Lows	37
Up Volume	3.27 billion	3.01 billion
Down Volume	494.51 million	1.13 billion

Historically, this kind of streak has fabulous implications for the market. Out of the 72 times there has been a 4-day streak greater than 5%, the SPX posted a median gain of 19.4% a year later, with an 86.1% positive rate.

SPX 4 Days >5%	One month	Three months	Six months	Twelve months
Count	74	74	73	72
Higher	51	46	57	62
Average	1.5%	3.6%	10.4%	10.1%
Median	2.4%	3.3%	12.3%	19.4%
% Positive	68.9&	64.9%	78.1%	86.1%

Carson

Underlying fundamentals have rapidly improved as advancers have come charging on swiftly.

It looks like the next big hurdle for the S&P 500 is 4,200. The Relative Strength Index (RSI) and the Moving Average Convergence/Divergence (MACD) suggest there is more room to run.

Busted Bonds

The iShares 20+ Year Treasury ETF (TLT) is breaking down badly and now faces a must-hold support point at 105. It has been an awful year for bonds, and I hope adjustments have been made; it seems unlikely the kind of return enjoyed for 40 years will be around for a long time.

The next secular move is a bear market.

Now, the Street sees a 92% chance of a 75-basis points (bps) hike.

Heat Map

Energy (XLE) continues to come on like a hurricane, but Technology (XLK) and Consumer Discretionary (XLY) enjoyed strong sessions as well. Utilities (XLU) continue to attract buyers looking to remain in equities but in safe havens.

The day was all about Apple (AAPL), which has made a monster move without big news.

Inflation Watch

Okay, the moment of truth is here. Ahead of this morning’s Consumer Price Index (CPI) report, the New York Fed saw inflation expectations ease to 5.7% one year ahead (consensus was 6.2%) and three-year expectations stumbled to 2.8% (consensus was 3.2%).

• Income expected to grow by 3.5%
• Spending expected to grow by 7.8%
• The home price seems to be growing by 4.1% (it was 8.2% back in March)

Portfolio Approach

The markets are getting hit this morning on the hotter than expected CPI.  We are going to suspend our current buys in the Hotline Model Portfolio.

Today’s Session

Oops, it happened again. The market sniffed out what was looking like an easy trade, and it wasn’t.  This morning, the CPI number is out, and it’s a major disappointment, coming in hotter than expected.

This inflation spike is a crime against Americans – all the free money has destroyed the value of money.

Small Business Optimism

Small business optimism edged higher, but at 91.8, it’s significantly below the 48-year average of 98.0.

Inflation is the top worry for small businesses, followed by talent they can’t find nor afford.

Fed Rate Hikes

Now 100 bps is officially in play.  I have been saying all year the Fed needs to go 100bps to send that signal and front load it to buy elbow room down the road.

Action

The market reaction is excessive but par for the course when fundamental have taken a major backseat to emotions of the Fed guessing game.  The volatility is good for trading but can lead to investing mistakes.

We might raise a little more cash, which is important in these circumstances, but also not taking losses on a great company, which you will regret not too far down the road.

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