Markets back at June lows. The big daddy of binary events is here!

A 6% recovery in the markets has disappeared in one single day. CPI and PPI data comes out next week and is the single determining factor as to where these markets will go next. Technical analysis works best in calm markets, with VIX at low levels and no major events happening, which can deal a sudden blow to the markets. We are certainly not living in those times right now. Putin, inflation, interest rates, oil prices, mid-term elections, just pick your poison. There is a plethora of choices to drive oneself crazy.

SPY 6M Daily Chart is oversold

SPY is back near June lows, and one bad PPI number, one bad CPI number, or some crazy Fed talk can destroy this market and take us another leg down. Conversely, we are also at an inflection point where a good CPI/PPI number can rocket these markets into a really sweet recovery. We will just have to wait and see what happens next week.

SPY 3Y weekly chart looks scary!

Ouch! that looks like a ship taking its last breath before it sinks into the dark depths of the Ocean. As pointed out earlier, a bad CPI/PPI number will easily take us down to pre-covid crash levels. I am hoping for a double-bottom bounce here, but the markets couldn’t care less what I want, so I will need to be prepared with some bearish bets.


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Market moving events next week

Oh Boy! Next week is going to be a tough one! It doesn’t get any more binary than this. It is going to be very hard to trade next week. Even if markets open green on Monday, it will mean nothing, as the PPI/CPI numbers will decide where we go next. Conversely, a deep red opening would ideally require me to put on bear put spreads as hedges, but I can’t go too heavy on that either because of the CPI data that is coming out later in the week. I have to admit; it is not going to be a fun week.

Earnings start again with the big banks.

BLK, JPM, C, PNC, FRC, MS – A ton of financial institutions mark a start to the earnings season. Due to horrendous conditions this year, I haven’t been able to take advantage of earnings at all this year. Trade setups are meaningless when the broader market is not co-operating with you.

Macro Analysis (VIX)

Nothing earth-shattering to reveal with VIX. We are back at 32, and we have been experiencing ridiculous wild swings in the markets which is to be expected when VIX is this high.

Spread Tracker 

  • The gargantuan drop on Friday helped turn several put spreads into profitable trades, which was really helpful in weathering the 10/7 expiry. So, no complaints there. I had already cut my losing call spreads at 50% loss (whichever ones I could, that is) and was relying on the put spreads to become profitable to help me weather these conditions. Well, HUM and REGN didn’t do me any good, but at least I had 4 put spread winners.
  • I have only one trade for 10/21, which is 13 days away, so it is going to be very easy to hedge if the need arises.
  • 10/28 and 11/4 are too far right now, and I am not too worried about them at this point. However, a deep red open will cause me to add at least 1 put spread for 10/28. I cannot jump all in because the CPI data can turn these markets in any direction.

Key Takeaways

  • CPI/PPI data and FOMC minutes next week. Brace for impact!
  • Trading and hedging will be very tricky next week due to the binary event. 


Here is the new cheat sheet. We are right at the cusp of a deep bear market. A bad reaction to CPI/PPI data will be that trigger.