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Market could be positioning for stagflation

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On Friday, we talked in great deal about the PPI number that was released and brought up the subject of "stagflation." What the S&P Banks Index (BIX.X) was doing on Friday didn't make sense in a scenario for stagflation, but today's action has to have equity bulls concerned. It's only one day, but as long as you're alert to the possibility you can protect yourself and perhaps play the trend. Let's update our QQQ bullish play from late Friday, as it should have been stopped out in the past hour.

NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval.

While I'm a big believer in market history, I'm going to honor my stop here at $53.75. I was able to capture the above trade as I was getting downside alert after downside alert from those levels we discussed this morning at 09:00 EST. The NWX.X started things off to the downside when it traded below Friday's low of 605. Not long after that alert, I received another downside alert at 600. With the NWX.X currently trading at 588, I'm not surprised of the performance in the QQQ's. OK to turn the tables and do some shorting/putting here.

Internet Index Chart - 60-minute interval.

The CBOE Internet Index (INX.X) had been trying to hold our 198 level the past couple of sessions, but today it's headed lower. This might be a sign that the MARKET just isn't willing to "speculate" in the group and may still be very concerned with higher P/E type stocks.

S&P Banks Index Chart - 60-minute interval.

The above chart is "missing" Friday's interval. On Friday the BIX.X was up better than 1%, but today it is getting hit to the downside. A break below 643 and then the 50-day MA might be a sign that the MARKET is thinking stagflation. This is one of the key components to our equation for stagflation.

Jeff Bailey
Staff Analyst

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