Week of 12/9 – PPI, Market, Commodities

This is the time when a BEAT is not good. Yes PPI surprised to the upside means COST PUSH Inflation still increasing and higher than expectations.

PPI +.3% in November.

Final demand prices also rose 0.3 percent in both October and September. On an unadjusted basis, the index for final demand moved up 7.4 percent for the 12 months ended in November.

Most of increases in Nov attributable to a .4% increase in prices for final demand services. Yes, SERVICES. A very sticky component of CPI as well. Final demand goods +.1%.

Overall, Y/Y 7.4% vs the expected 7.2% and CORE was 6.2% vs expected 5.9%. Food, energy & trade was 4.9% vs expected 4.7%

As I continually discuss, bringing down inflationary pressures is our number one goal as it is still highly elevated at all levels. Cost push inflation persists as we see here today.

Next week, CPI and Cleveland FED forecasts +.47% M/M and CORE +.51% M/M. Still increasing. However, per FED Watch Tool we still have a 77% probability of 50 bps rate hike next week at FOMC Dec 14.

Potential for Stagflation into next year so fundamentals most important. There are sector leaders making new highs still. There are emerging leaders such as SMCI ENPH and many others that are increasing their margins, increasing EPS double or triple digits from a year ago, beating their earnings, raising guidance, etc. You just have to look. Of course, I will provide you many ideas too.

China stocks are moving on reopening story. I am not a fan overall. China is a trade and could be a good one. Use your own discretion. BABA KWEB FXI are my favorites over there.

I will list “some” stocks. Not a buy endorsement for them but just giving some good examples of recent good plays. This list is NOT inclusive. There are many more.

Biotechs (SWAV, RYTM, AMLX, HRMY, CRBY, UTHR, VRTX), healthcare XLV (CCRN, RVA, OPCH), staples (GIS, SJM), renewables (ENPH, ON, ARRY), Semis SMH (AMKR, JBL, AEHR, AMD, SANM), SMCI and commodities

I still like cybersecurity as a sector (ZS, PANW, CRWD, FTNT), Industrials (CAT, DE)

Commodities :

Metals – GOLD, SILVER, Palladium, TECK; Futures on metals or ETFs

Ag – Soybeans, Sugar (CANE)

Lithium – SGML, LAC, SQM,

Fertilizers – CF, NTR

Nat gas – very volatile but if you like to trade then BOIL/KOLD (watch the patterns) this one swings back and forth

Also playing TLT on the recent reversal. Other ideas are MBB (Mortgage Backed Bonds), IEF (7-10 year treasury bond)

Overall market is choppy and hanging on a thread. Besides MACRO being very bearish the technicals are ok. We were having a BMR but now headed into CPI and FOMC it could get even more volatile.

Indices under 200d MA (SPX, QQQ, IWM) and DIA above

We know the flight has been to VALUE over GROWTH. SPYV/SPYG Increasing

We do need GROWTH price action to improve substantially. Broader sectors and more stocks to participate too. It is still a “selective stock” market.

Regardless, FED is still raising rates and taking liquidity out of system.

For me, I am maintaining higher CASH levels than usual at about 50%. Focus on the “select stocks” with higher relative strength. Do not chase and be patient on entries. Reduced position sizing is key. Keep your stops tight and cut them fast.