Coiled Spring Capital Mid-week post Oct 12, 2022

We wanted to circle back with a quick update on how things look prior to the CPI. We mentioned over the weekend that trading this CPI print is binary, and binary we don't do. This might be the most important CPI event since this whole mess started. Most CPI prints have not been receieved well this year for the market so why should we expect anything less?

The difference between this print and the previous prints are that everyone and their cousin knows the CPI is printing tomorrow. Rewind 1 year ago and we would venture to say that most people couldn't even tell you the definition of the CPI. All of a sudden, it's a bad word.

The negative rhetoric and attention this CPI print is getting, makes this set up that much more treacherous. The put buying into this event is mind numbing. How much of that put buying is directional or hedging is hard to say. We'd venture to say quite a bit of both. Regardless, its being contemplated. Usually when something is this contemplated the opposite of what everyone thinks and is positioned for, occurs. Is it different this time? Actually, we think it is. We are getting to the stage of the bear market where utter disgust and capitulation can happen. Every rally is getting sold. We just had 2 island reversals in the indexes in a span of 3 weeks. Dejection and frustration are running very high.

We do think a very hot print could unleash a massive bout of selling. We also think if it comes in line to slightly lower, there could be short covering. Nobody is positioned for the CPI to really deflate. Thats the pain trade and being short into the event could prove a grave mistake. Regardless, it's not something we are playing and thus we remain agnostic.

A few very interesting things to consider as we await the CPI....

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