The inflation picture just became a little clearer, and a little worse.
Tech stocks are diving.
I’m watching for bounce setups.
First, it was the CPI on October 14. Then came the PPI on October 15.
The consensus: inflation is moving in the wrong direction.
And Wall Street is finally growing wary.
As of October 15:
The most popular stocks are in freefall.
For most investors, that’s a scary reality. But we’re not investors… we’re traders.
And when stocks extend too far in one direction (up OR down), we see momentary pullbacks that offer substantial gains.
These are my favorite bounce setups…
The CPI
On Wednesday, September’s CPI showed consumer prices rose 3.7% from a year ago, faster than August’s 3.4% and above the 3.6% economists expected.
I covered those numbers in this blog.
Gas did most of the damage, climbing 9.1% in a single month and pushing the national average to a record $4.33.
Then Thursday’s wholesale report gave us another glimpse under the hood…
The Producer Price Index jumped 1.3% in September and 6.3% year over year, the biggest gain since 2022. Economists were expecting 0.6% and 5.5%.
Energy drove more than 80% of the increase, and wholesale gasoline alone surged 20.3%.
The part that worries the market the most: core wholesale prices (excluding food and energy) rose 5% from a year ago, up from 4.6% in August.
This isn’t just energy inflation anymore. It’s spreading throughout the entire economy.
Plus, wholesale prices give us a glimpse of where consumer prices will go next. This may be just the beginning…
As a result, the S&P 500 ETF Trust (NYSE: SPY) fell 1.11% on Wednesday as traders dumped tech stocks.
Now the Fed is in the spotlight…
Before the CPI report, traders saw less than a 25% chance of a rate hike this month. Now it’s close to a coin flip. And the Fed meets on October 28.
Moody’s Mark Zandi warned that if interest rates stay high for more than a quarter or two, AI spending could be the part of the economy that breaks.
That’s the main fear.
And I’m OK with the fear…
My Favorite Setups Right Now
Some of the strongest setups in the market come after the most intense periods of euphoria and fear.
I’m talking about reversion trades.
When a stock’s price extends from over-aggressive buying or selling, it eventually switches directions, at least briefly.
That’s the move I want. When a stock backtracks after an unsustainable move.
When do we know a stock is exhausted and ready to reverse?
Be careful with that language… we don’t know for sure. Nothing is a 100% guarantee in the stock market. But identifying the strongest setups is simpler than you think.
For example, this week, CoreWeave, Inc. (NASDAQ: CRWV) fell as the tech selloff gained steam.
CoreWeave provides software and services that deliver the automation needed to manage complex AI infrastructure at scale.
But on Thursday, October 15, the stock ran into support and bounced…
The share price only bounced 15% off the intraday lows. But with short-dated options contracts, that move gets multiplied exponentially.
The best part is… CRWV could continue lower from here. I don’t care either way.
We can lock in gains, pat ourselves on the back for a solid trade, and start looking for the next one.
While the market panics, I sit in cash and wait for the best setups to come to me.
It’s the best process for small account traders…
How I turned $5,000 into $493,000 with a repeating trade pattern.
Stay Street Smart,
Jeff Zananiri
