While interest rates, the debt ceiling and the ever-shrinking infrastructure bill may have driven headlines this week… the media doesn’t drive the market — actual data does. And as I’ve said a hundred times: ignore the headlines when trading.
The week started off with a big uptick in durable goods orders and wholesale inventories.
That was fantastic news, as it indicates both that consumer demand is surprisingly strong for this time of year, and that some supply chains are shaking off the rust.
Of course, the market was so freaked out about interest rates rising on the 10-year U.S. Treasury, they clearly forgot to pay attention.
The latter half of the week showed economic improvements as well, with a huge beat on home sales, a small beat on gross domestic product, and an improvement in consumer sentiment.
But honestly, it’s that last one — the uptick in ISM Manufacturing, Prices Paid and New Orders — that is the most bullish of the group.
That means manufacturers think they can go ahead and pay higher prices for raw materials, and that they can pass the inflation on to their customers.
Remember, when inflation ramps up, interest rates ramp up alongside it, almost without fail.
So the talking heads shouldn’t have been so scared earlier this week… They should have been excited. And if you ignored the headlines and listened to me, you would have been.
Why You Should Ignore the Headlines When Trading
When inflation rises, it often increases consumer spending — which comprises roughly 70% of U.S. GDP.
And while we were moving lower from the 70-year-high GDP print posted in June, this increase in manufacturing, the upcoming holiday and the pullback in delta variant COVID-19 cases may very well cause GDP to start growing again.
That’s why we went long the Grayscale Ethereum Trust (OTC: ETHE) on Monday, and long the Russell 2000 ETF (NYSEArca: IWM) Wednesday.
Because all it takes is a smattering of positive news — in this case, Friday’s announcement from Merck on its COVID-19 pill — to get things moving into the green.
To that end, our position in ETHE is up 4% relative to our Monday entry, or as much as 18% if you kept buying the dip as previously suggested.
Just FYI… whenever prices make big runs like this, it’s perfectly good judgement to sell a little — say 10 or 15% of the position — to lock in some profit.
Then you can use that profit to buy dips in any underperforming stocks and ETFs like the Direxion Daily S&P 500 Bull 3X Shares (NYSEArca: SPXL) and the ProShares UltraPro (NYSEArca: TQQQ).
Similarly, our last trade on IWM is doing fairly well, up about 1% from Thursday’s open.
And while it’s perfectly fine to sell a little here, too, this one is just getting started… Unlike ETHE. which ramped up nearly 20%.
On that note, it’s amazing how quickly the media went from “China is cracking down on crypto,” to “analysts see strong fourth quarter for crypto.”
But hey, when it’s your job to sell advertisements, there’s not much time left to do, you know, any real work.
Next week is light on data releases, so expect more narrative-driven days than usual.
With the month-end behind us, I’d expect those narratives to be more positive than negative… But whatever they are, we’re going to ignore those headlines when trading.
All the best,