New Bull Market

Seeing reaction to the CPI report, I am concerned the rally could go on longer than anticipated. My sense is many bears are all-in on the "inflation bad" formula. The zero print for July isn't causing a reassessment. It's only one month, but it's a significant move from 1.3 percent in June alone to 0.0 percent in July. I expect August will be negative and the 12-month CPI will start plunging.

Look at prior CPI spike peaks. They came in February 1970, November 1974, March 1980, October 1990, July 2008 and June 2022. 

Stocks bottomed in: May 1970, October 1974, March 1980, October 1990, March 2009 and June 2022. 

The only case where there wasn't a low at the CPI peak was in 2008, and only in 1970 was the low months later. Whether this proves to be a major low or merely a blip will become evident rather quickly because a continued move higher will eventually take out key resistance levels.

The bear case is something more like 2008 unfolds with an ongoing recession that doesn't bottom until 2023. If inflation doesn't crater at least several percentage points, it will break with history.

For the bulls, peace with Russia is the "free lunch." If sanctions lift and energy prices come down, there's the fuel to run much higher. Recession would probably be avoided and new all-time highs on the indexes wouldn't be out of the question.

XBI is one of the most bullish charts out there in terms of arguing for a major bottom in stocks. ARKK, XLC, META and so on are also bottoming if the market is going higher.

I'm not bullish yet. I'd be more confidently bearish if bulls picked up the argument laid out above and ran with it. I'd love to see Apple fill its gap around $173 for example.