The PPI Report Wednesday morning came in hotter than expected, and that is causing increased nervousness about the CPI Report due out at 8.30 am ET on Thursday morning.
The CPI report is extremely important as it is likely to solidify the chances of a 0.75% hike at the Fed's next meeting unless it is surprisingly soft. CPI and PPI tend to have a strong correlation, so there is now less optimism about a surprise CPI report.
The market's movement on this economic data is interesting for short-term traders that are looking to trade daily volatility. However, it does little to change the big picture. The market is clearly in the jaws of a bear market and struggling to hold at the year's low point.
The biggest danger in this market is being too quick to anticipate a major market turn. Long-term investors often want to hurry about buying stocks simply because "they are down a lot and will be sure to be higher years from now."
That is very enticing logic and helps justify the inclination to do something when the market is offering very little. But there is no real compelling reason to rush to build up positions when the market is in this position. You will not miss out on a major uptrend if you aren't heavily long right now. There will be plenty of time to buy great stocks in the months ahead as this bear market continues to develop and eventually ends.
The Best Move for Investors Now
The best move for long-term investors right now is to maintain high cash levels and do very little. We don't see this advice a lot in the business media because everyone involved in the market needs you to stay interested in it. The experts always have a strong bias toward action because that is what they are paid to do. They are going to encourage you to buy even in the worst markets, and they will justify it by saying that, in the long run, it will pay off.
If you are a short-term trader, you can find some volatility to keep you entertained, and the CPI report on Thursday should offer a good trade at some point, but for a long-term investor, it doesn't matter much. It may help to advance the bear market, but a return to health is going to take a while. Don't worry about missing out. Worry about protecting capital.
My best advice is to be clear about your time frames. If you are short-term, then make sure your trades are short-term. Don't let style-drift occur.
If you are longer-term, then wait for the charts to improve. Do not get sucked into the serial bottom-calling game. Folks that write about the stock market daily have little else to do but spout a constant stream of predictions, and trying to predict the market low is one of their favorite things to write about.
Unless you are a hard-core day trader, you can't expect to produce consistent position results in this market right now. Conditions will shift, and if you are patient and protect capital, then you will be in a great position for big gains.
