2.14 Trade Plan

CPI in Hot & Portfolio Management

There’s a scene in the movie The Devil’s Advocate where Al Pacino tells a young Keanu Reaves “What's the game plan? It was a nice run it had to close out some day, nobody wins them all..”

That’s a great scene and that’s what longs are starting to wonder today. Is this just a blip to buy or is the start of distribution and the beginning of risk-off?

I have thought’s that I’ll share on that in the premium section tonight.

CPI came in hot today - whisper was a non-event but even it slightly printing hot moved the market, and I’ve talked about this area on the S&P500 being dangerous/risk off for over a week now in this free section as well as in the paid section for members.

Focus items:

• Energy prices fell 0.9%

• Gasoline prices fell 3.3%

• Used auto prices fell 3.4%

• New vehicle prices were unchanged

• Medical care services rose 0.7%

• Household insurance rose 0.7%

• Auto insurance rose 1.4% in January and 20.6% year on year

• Owner’s Equivalent Rent rose 0.6%

• Airfares rose 1.0%

So, I am going to do that one thing where I highlight my market analysis (because I see so many of these charlatans on Substack and other places) do that and why not join it.

$5000 is a key Fibonacci extension and just above that $5140 is a spot as well on a measured move. You can add on other indicators to the analysis, and I am certain you’ll get the same exhausting signals pointing to caution, but this is one that I use and that I have used since 2009 and it’s rarely wrong. Some of you read that as “I should sell everything” and some of you read it as I would suggest as a tool for sentiment to give you a read on where it’s short-term risk on/off.

That’s what was posed February 4th in TLV Report 6. - Read that here.

Your gurus love victory laps - but I bet very few of them actually had any risk on and I personally do not care about market calls; I care about P&L - that’s what pays the bills and that’s what has me down in Puerto Rico the last 3 years on zero capital gains.

Your guru today is also telling you that “we have not broken any technical levels” - which is true, we have not - but they can’t structure a portfolio or generate trade ideas to save their life (other than the same 7 stocks or day trading with half the account only to go back to cash).

But they say this because they don’t know how to generate long/short trade ideas that are not tied to the SPX. The majority of retail/charlatan trading is ES analysis or market analysis - it’s been like that for a decade. And until you get away from that narrative your portfolio/trades are soley high-beta or market correlated. If that works then keep doing it, if not, maybe there’s a different way.

In Professional Trading we call it long/short equity you manage a portfolio of trades - not bet on one stock or have only long-only ideas.

A mix of quality ideas long and short, with various portfolio risk on them to generate risk-adjusted returns. You make a lot on others; you lose small on some but overall, you get risk-adjusted returns.

So, instead of betting the farm on 1 or 2 ideas and having to wonder if the $SPX is rolling you put together some longs (even some tied to $SPX) and some shorts.

That’s a long/short equity portfolio - that’s as real as it gets to Professional Trading.

One of those ideas has been long energy, specifically VLO 0.00%↑ and a few others which we’ve been long in DeltaOne and got even more long today.

The best way to approach long/short ideas is to create them over the weekend - not each day by getting up at 5am scanning - (imagine thinking that Tier 1 prop/hedge fund traders spend a career doing that)

One of those ideas this week is long energy:

USO 0.00%↑ long

VLO 0.00%↑ long

WTI Crude calls long

Take your pick.

But all of that work - the idea generation process is always created ahead of time — even the trade structure.

For example, $77 on oil cleared today and I am now long USO 0.00%↑ but that was done a while back on the research.

But I also came in long NVDA 0.00%↑ shorts today (talked about in the premium video) last night so that combined with other positions gives the portfolio:

• Long and short ideas

• Some correlated to SPX - some not (like VLO etc)

I am still short that name, some of it under water, some of it covered for profits but it brings the major question tonight for the market.

Is this just a blip on the radar?

$4920-$4910 is key - if that breaks, we’re in trouble.

I am certain that all the pod-shop PMs (hedge funds) are risk-off right now or at least reeling in/reducing risk.

And you all better hope, for the sake of the market at large, that we hold because if we don’t and NVDA 0.00%↑ starts to unwind all these PMs/funds that crowded into that are going to exit as well. (and I hope they do!)

The only reason now I care about this $4920/ish area is so that I can trade intraday SPY 0.00%↑ long if it sets up tomorrow - that’s it. I’ve been non-correlated to SPX other than some swing names ( VSCO 0.00%↑) and some others for a while and I added in some home builder shorts last week.

Bottom Line From Today: There are important differences between how the CPI and the PCE are measured, and the latter is the Fed’s preferred inflation measure. The CPI ran hotter than the PCE through the second half of 2023 and will run hotter for January given the OER’s contribution this morning. However, that does not mean that stickier core and super core CPI data should be ignored, but higher-than-expected inflation nevertheless is not going to convince a reluctant Fed to cut rates.

A tradable bounce? Surely - a new leg higher? Maybe.

One last thing - you know what else Al Pacino said in that movie.

“Never get too cocky. That's the lesson. You're never too good. You're never done learning and there is always someone better than you.”

Keep learning - the more you do the easier this gets to create a process.

Thanks for reading.

In The Premium Video Tonight I cover:

• S&P/Nasdaq/Crude Oil Analysis

• What’s next for SHOP 0.00%↑ - a new continuation short-idea?

• GS 0.00%↑ (Goldman Analysis) - a failed breakout

• Home Builders in Play Short - why you should start tracking.

P.S. A New webinar in a few weeks on long/short trading. Sign up here.