"I don't set trends. I just find out what they are and exploit them." - Dick Clark
Another morning... another pivotal catalyst on deck.
As usual, the mainstream financial media are fumbling over themselves wondering, "Oh me... oh my... how is the market going to react?"
Well, if you've been paying attention the last couple of weeks, you know myself and others have taken a sledgehammer to this uncertainty.
I've explained that there's often no question about which way equities are going to move on data releases or key events.
And the only ones left pondering, "What now?" are those who haven't bothered to do their homework.
Well, it just so happens our next crucial government report is less than two hours away... But we're not worried about that one. We're focused on this pivotal release on the horizon.
Find out at how to prepare for it today...
61% Chance of Gains
Over the next two days, all eyes will be on the PIs.
This morning's Consumer Price Index (CPI) isn't the only data report to watch. And we detailed what to expect and how to prepare in Monday's Pre-Market Prep.
Tomorrow morning, the sister report to CPI is released - Producer Price Index (PPI).
These are two vital data points the Federal Reserve watches in its fight against inflation.
But the market moves on these two reports haven't quite been the same.
Now, tech stocks are in the crosshairs when it comes to rate hikes. These companies sport high growth rates but suffer from higher debt burdens and lower profits per share than some of their industrial counterparts.
In turn, this creates a situation where every rate increase is an additional weight tech stocks must carry.
That's why I focus on the Invesco QQQ ETF (QQQ) on every key government data release and Fed Day.
These stocks are where the action will be.
They'll see the biggest gains or the deepest drops.
Now, over the past year and a half, the QQQ's reaction to PPI is somewhat of a mixed bag...
We've had seven down days and 11 days of green.
That translates into a 61% success rate.
And our average +/- move on the report is 1.17%.
So, we can see PPI is a hotbed of volatility for tech.
Of course, in recent months, the tone has started to improve. And we've had four consecutive gains on PPI.
That's all thanks to the fact that producer inflation - much like consumer inflation - continues to decline.
As investors look for the Fed to finally stop its rate-hike madness, that's all that matters. Every tick lower in PPI moves us that much closer to the end of this rate-hike cycle.
But there's another takeaway here for investors...
Filtering Out False Moves
Above I mentioned "average +/-."
I often field questions about what that is.
Well, I personally turn to the calculation for average +/- instead of median or average gain, or even standard deviation, on catalysts like PPI, CPI, or even Fed Days.
That's because it gives me a clearer picture of what type of move to expect... up or down.
You see, if I calculated the median or average gain of the QQQ on this report, the number is meaningless. All those big moves higher and lower cancel each other out.
For example, the median gain of the QQQ on PPI is 0.34%... the average gain is 0.38%.
But the reality is, over the last 18 reports, the QQQ has seen 8 moves (almost half) greater than 1%. And only four moves were near that average or median gain.
So, if I only relied on the median or the average return, I'd be off by a wide margin on the type of move to expect. Not to mention, I'd cut myself short on how to exploit any move on these triggers.
That's why I use a calculation like average +/-, which relies on absolute values. Negative and positive numbers don't cancel each other out. They're weighted equally.
The result is a clearer picture.
My approach to investing is all about knowing what to expect.
I ignore the financial media and their theories du jour.
I focus on facts.
I focus on reliable trends and probabilities.
I do my best to idiot-proof my trading, to protect my portfolio from "gut feelings," "whims," or other dangerous market mysticisms.
That's what leads to my success. And yours.
It also allows me to maintain my sanity while so many others question theirs with each twist and turn of the market, looking to blame clandestine forces behind the scenes pulling proverbial strings.
The harsh reality is, I completely understand the only idiot I need to shield my financial future from... is me.
Here's to high returns,
Matthew