Don’t make big investing decisions until Feb. 14

No, it’s not due to Valentine’s Day; that’s when the all-important inflation report is released.

The stock market decline more than a week ago was kicked off by higher-than-expected wage increases that showed up in the January jobs report.

Higher wages are raising the specter of inflation. As a result, interest rates have risen rapidly as investors and traders anticipate that the era of benign inflation may be coming to an end.

Does it make sense to wait until the next inflation-related data point is released before making big buy or sell decisions in the markets? If yes, please read on.

The Morning Capsule that is made available to the subscribers to The Arora Report every day before the market open said: “From a fundamental perspective, the reason for the downdraft is the specter of inflation. On Wednesday morning at 8:30 a.m. ET, the Consumer Price Index (CPI) will be released. The smart money appears to be waiting for this data before acting.”

So the all-important inflation report coincides with Valentine’s Day this year. May both events be favorable to investors …

Let’s examine inflation using a chart.

Chart

Please click here to see the chart of the Consumer Price Index (CPI) excluding food and energy prices. Please note the following from the chart:

• The specter of deflation is over.

• CPI ex-food and energy can vary quite a bit from month to month.

• The Federal Reserve has been targeting 2% inflation. The data so far are not out of line.

The consensus is for CPI to come in at 0.4%. Expect machine-driven investing strategies to buy stocks if that number is lower and sell if the number is higher. However, most investors should not react to what machines may do when the news hits.

At The Arora Report we look at CPI ex-food and energy; our estimate is 0.2%. Yes, we all consume food and energy. The reason for excluding food and energy is that food and energy are volatile. The volatility makes it impossible to use the data for any kind of prediction. To see the 10 categories of inputs that go into The Arora Report timing model, please click here. The ZYX Global Allocation Model is adaptive, i.e., it changes automatically with market conditions.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Smart money and ‘momo’ actions

On Friday, when the market was down 700 points, the “momo” (momentum) crowd was aggressively selling but the “smart money” (professionals) was buying into the weakness. This morning the momo crowd is aggressively buying. The smart money is inactive.

 

Read Full article @ Marketwatch