40-Year High Inflation Hits Stock Market

In this article:

• Consumer Price Index higher than expected
• Inflation, and jobs may force Fed aggression
• Managing risk is key to success in volatility

The peak of inflation may still be on the horizon after the benchmark economic marker hit a new 40-year high in June.

Consumer Price Index (CPI) numbers released Wednesday morning showed inflation increasing to an unexpected 9.1% and sent the stock market into an early tailspin before the market chopped into the end of the session and closed just below flat.

This volatility is pushing traders to readjust plans and watch the market more closely than before.

Inflation spike hits stock market

The market appeared to be heading off a cliff Wednesday morning before regaining enough footing to close out the day near flat.

In the market today, the Dow closed at 30,772.79 points to slip .67% (dropping 208.54 points on the day). The Nasdaq dropped to 11,247.58 points for a .15% setback while the S&P 500 was off .45% to 3,801.78 points.

The sporadic market movement followed shocking inflation numbers released early in the day.

According to the U.S. Bureau of Labor Statistics, the “all items” CPI increased 9.1% for the 12 months ending in June and was the largest 12-month increase since the period ending in November, 1981.

The Core CPI, which excludes food and energy, rose 5.9% over the last 12 months. The BLS showed that energy rose 41.6% (the largest 12-month increase since April, 1980) and the food index increased 10.4% (the largest 12-month increase since February, 1981).

Higher inflation numbers support the argument that the economy and consumers are facing steady, strong, and widespread inflation pressures.

This four-decade high was unexpected among analysts and economists, and the stock indexes struggled throughout the trading session Wednesday in see-saw range of price action.

Consider day trading as an option

All the chaos of this market has created a new level of stress for traders.

One strategy to consider is day trading. While day trading is considered a higher level of risk, the team at Simpler Trading understands what traders go through when the market maintains an extended level of uncertainty.

Simpler Day Trading allows members to follow experienced traders as they “get in, get out” with trades that limit capital exposure. What is appealing to traders in this market is the community of professional traders delivering live-trading insights during market sessions.

Avoid the stagnation of trading alone, and check out this daily training and learning option.

Market, Fed face ‘quagmire’ of issues

There are several key areas of the market that Simpler’s traders are watching for potential to trade setups caused by bear market volatility.

As the CPI continues holding at higher levels, Simpler’s traders are watching for equity markets to sell off and for the Federal Reserve (Fed) to stay on track to raise interest rates further. The stock market could stay in a choppy range until either or both of these pressures cool off over the next few months.

Fed actions are a cause for pause when considering trades in the current bear market.

Higher than expected inflation and stronger jobs reports may force the Fed to keep hiking benchmark interest rates. Even flat growth (a growing economy with limited supplies keeps inflation higher) could push the Fed to keep hiking rates.

The stock market and Fed are facing a quagmire of economic issues, including entering a recession where the Fed might have to consider less aggressive rate hikes for fear of crippling the economy for the long term.

Traders have to – you guessed it – follow a pre-established trading plan that is adjusting to fickle conditions in the market. Until the market presents a clear trade setup, there is no trade to pursue.

Trade setups follow a process of putting together a checklist of what signals are required to “alert” on stock charts before taking a trade.

Some current areas of interest for Simpler’s traders include crude oil, metals, and treasuries.

Crude oil has been in a see-saw channel for some time. Even after dropping below $100 per barrel in recent sessions, expectations are that limited world supply could push prices well above the century mark in the short term.

Gold, silver, and copper are always of interest among traders, especially those focusing on futures. Metals have continued in an overall downtrend, and Simpler’s traders are watching these assets with thoughts of shorting the rip. The target is a rally that reverts to the mean.

Shorting the rip is also a consideration in treasuries, particularly 10-year notes, long bonds, and five-year notes.

Trading futures in a bear market

Futures trading is a strategy to expand a trading portfolio as the market chops along in neutral.

Traders who are learning futures trading or are seasoned veterans can always use extra insight to apply strategies to navigate an uncertain market.

Gain access to live-trading sessions where you can trade with a professional, get real-time trade alerts, and study the learning center to build personalized strategies in the futures market.

There are futures trading learning opportunities at Simpler Trading.

Use basic, calculated signals for trends

Traders always seem to be pursuing the “next best” chart trading tool. Often the answer is to revert back to “basic” tools or discover these tools for the first time.

Consider the slow stochastic indicator – an often overlooked charting tool – available for free on various online trading platforms.

This is a technical analysis, momentum indicator designed to measure trends in asset prices and alert traders to trend reversals. This indicator highlights when assets are overbought or oversold, and tracks a period from five to 14 days, sometimes up to 21 days.

This simple, calculated trading indicator serves as a “warning signal” for the strength of trend in price movement, and often works well when combined with other indicators. 

The slow stochastic indicator fits into trading plans tracking support and resistance on charts. The key is to look at previous support and resistance that answers the question, “Has the market been to a support or resistance level before and what was the market reaction?

A complementary tool to the slow stochastic is the Darvas indicator which automates support resistance levels on stock charts.

As repeated often in Simpler Insights, this market is volatile with new twists and turns following almost every economics-related news event.

Traders are encouraged to follow the risk parameters established in personalized trading plans – plans that match account size. Simpler’s traders don’t plan to take on more than they can chew, and get chewed up by the market.

Building a trading plan can be as simple as finding a market, a time frame, and an indicator that fits the trader’s style and ambitions, and then learning to trust that plan – and yourself.

Traders often quickly learn that the market is an expert at extracting cash from traders. 

Simpler’s traders know that when they have learned the necessary skills and followed a plan they have a chance at success with each trade they pursue.

In this volatile market, traders should avoid getting lulled into complacency.