Toward the end of Thursday's trading session, I heard from a handful of veteran traders and they all said the same thing: Everyone on Wall Street was positioned incorrectly ahead of the Consumer Price Index data. Admittedly, the Nasdaq doesn't spike 7.35% if most investors are already long. And it's not every day that you see the S&P 500 rally 5.5%. But is it really fair to say that everyone was positioned poorly ahead of the CPI data? I don't believe it is, but it depends on your strategy.
Suppose you trade a lot of Dow Industrial names, stocks such as Boeing (BA) , Caterpillar (CAT) and JPMorgan Chase (JPM) . You probably should have been sitting in a handful of positions as the SPDR Dow Jones Industrial Average ETF (DIA) has been ripping higher since its Oct. 13 bullish reversal.
But if you're primarily a Nasdaq trader and aren't nursing a basket of technology and software-related losses, you likely came into Thursday's session relatively flat. Given where the Nasdaq was before yesterday's rally (beneath all its moving averages), underinvested was a fine place to be.
The bottom line is that how you entered Thursday's session should be a function of your investment or trading style. And let's face it, if yesterday's upside explosion is the turning point in this bear market, you'll have plenty of opportunities over the next few weeks to buy whatever you like.
Moving on, the iShares 20+ Year Treasury Bond ETF (TLT) is back above its 10-day and 21-day exponential moving averages (EMAs) for the first time since Aug. 11. I started buying the TLT in late October when the 14-period Relative Strength Index (RSI) collapsed into single digits after a prolonged decline. While I own less than I wish I did, my plan always has been to try and stay long and build the position larger over time, as I believe the TLT can outperform if we enter a recession in 2023. However, if you're simply looking for a way to trade the TLT, I think you can be long now that price is back above the 21-day EMA. A logical stop would be a close back under the 10-day EMA or a close under the 21-day EMA with the RSI back under 50.