Coiled Spring Capital Mid-week update 4/12/23

If you are an avid reader of our work, you know we have been advocating caution with the recent tape. There have been some confusing signals for both bulls and bears which means to tread lightly, do less, and trade smaller. We have been successful with most of our single stock/commodity/index trades, but this past weekend we dialed up the caution meter in our weekend report.

In fact, we thought we would probably get a softer inflation print, met with some enthusiasm, but that could revert.

Here are excerpts from that report:

“This week we will also get the March CPI report. As we have written previously, inflation is subsiding, but not at the pace the Fed is comfortable with. Does a lower CPI print pull back the next meetings forecasts? We doubt it. We are starting to see certain aspects of inflation reaccelerating.”

“We are into the teeth of a major resistance zone (4100-4200 SPX), and one where we’ve been on record all year thinking we would not break through. We can certainly be wrong on this prediction, but we think for it to happen it would need some sort of major catalyst.”

The SPX keeps stalling in this window (todays high was 4134) and now closed under the 4100 pivot.

Does today’s weakness add credence to the Head and Shoulders top pattern all the armchair technicians on Fintwit are calling for? Sure, but forming and confirmation are about 300 points away. Was today’s candle a bearish engulfing candle? Yes, but volume was still light.

Confusion reigns. Part of the issue is nobody is long, and everybody is short. Who is left to sell? CTA’s are driving the market and without downside momentum they won’t flip negative. Hence, “confusion.”

Here is another excerpt from last weekend’s report

Sure, the positioning remains offside, and maybe earnings won’t be as bad as everyone thinks, but is that enough to bring out buyers in earnest given the deteriorating macro back drop? We don’t think so….”

We have maintained the market is stuck in a range and will frustrate both bears and bulls. Bears who think we will collapse at any point and bulls who believe we are headed for ATH’s. We think both will be wrong which means traders and investors need to pick their spots. Entries and exits matter and finding alpha in a range bound tape is quite difficult.

We don’t subscribe to any particular bias, and we only call it like we see it. We didn’t trust the rally recently and so far that seems to be the right call. In the words of Kenny Rogers:

You got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run

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