Red Hot Inflation, Volatility Soars And Scary Prediction

When the CPI news hit the wires, the market immediately started to sell off on Wednesday. Concerns rose that inflation, which many thought had tempered, was in fact red hot.

Translation: The Federal Reserve would be less likely to cut rates. And since rate cuts have been priced in, the only way for the market to go was down, which it did. Just about all the major market averages fell by around 1% on the day.

Yet, it didn’t come as a surprise to one notable trader, and if he’s right, this is just the beginning of a bearish decline.

Key Points

• The market experienced a sell-off in response to unexpected CPI news, with concerns about persistent high inflation leading to speculation that the Federal Reserve would not cut rates.
• Champion trader Mark Minervini had anticipated the scenario and already shorted the Dow Jones Industrial Average, a move that proved profitable shortly after the CPI report was released.
• Minervini predicts further market declines, suggesting that a downturn of as much as 10% could occur before the market stabilizes.

The Scary Forecast

Before the red hot CPI tape reading shocked Wall Street, Mark Minervini, a mult-time champion trader who has a keen knack for spotting market opportunities announced that he had gone short the Dow Jones Industrial Average.

On the day of the report, he revealed that he had doubled his short position on DIA since the first public announcement. And it turns out that was a profitable bet within just a few trading hours. You can see the break of the up-trending support line was the trigger to denote risk was elevating.

Yet Minervini didn’t stop there. He declared that the market had some ways to go to the downside before it was likely to pause. A decline of as much as 10% would be well within the realm of possibility.

Credit: TradingView

A Bright Spot on the Horizon

Notably, Minervini has stated that while he does expect a meaningful correction in the short-term, he is not expecting any major changes from the long-term bullish trend. It would take a much more seismic shift in the markets for the long-term model to flip from bullish to bearish.

So, for long-term investors, a pullback now will likely be a blip in an otherwise bullish multi-year trend if Minervini is right. For traders who are looking for an opportune spot to buy, the better time to jump in would appear to be a little further down the road, and most likely in a month or so.