DailyPlay Updates – May 10, 2023

Investment Rationale

Yesterday was a profit-taking day ahead of today’s CPI release. All eyes are on this critical inflation figure – most especially amongst Fed Chair Powell and crew. The numbers are expected as below in the far right column:

Remember that last month’s OPEC cuts spiked the price of crude oil, and that prior price move has all been given back, so I expect that some will argue that the number may come in higher than what is really relevant now. That may not be the wrong way of looking at things, but stubborn bulls will almost always come up with a reason that the Fed is close to ending their rate hikes and that they’re close to cutting this year. I still don’t think they’re likely to do that this year, and if they are forced to do so because of a problem arises in the system, you can make the case that a rate cut would mean that things are really quite bad, after all.

Though Thursday’s PPI number is not generally as meaningful as today’s CPI figures, if it is way high out of line, it can still be a problem for stock holders.  I suspect, however, that today’s number – if enough above or beneath expectations – will set the stage for the next 100+ SPX point move. And in that event, don’t be surprised if that 2.5% move comes quickly.

Portfolio-wise, the four individual SPY put spreads we have on: June 16th $410; $411; $412; and $413 long puts – all vs. selling the $385 puts against, show up as a single 4 contract $411/$385 trade. Our team is diligently looking into seeing how they can separate them into individual listings.

Also, IF CSX trades down to near $31 tomorrow or Thursday, let’s exit 7 of the remaining 17 long $31/$29 put spreads we have on that expire on May 26th.

The fun and games will be evident in the futures markets today at 8:30am ET when the CPI gets released. It will be interesting to see if the futures will make the 9:30am open become a large gap.