Bull Trap Springs: Inflation Higher than Expected

The great thing about a bear market is there's no need to get too tied up in the how or why because bad news is coming.

I was wrong about inflation coming down, but stocks still get wrecked.

Inflation came in higher than expected in August at 0.1 percent. That was spot on the Cleveland Fed's forecast of 0.06 percent. Since the Cleveland Fed forecasts 0.36 percent inflation for September, the stock market and bond market might be in deep trouble here.

Stocks have rallied hard for a few days leaving many bulls trappeed. Bonds are on the cusp of a major breakdown. TLT is already at a new low and ZB is almost there. I do think there's some risk of a double-bottom, but I'm far less confident about bonds here. If bonds go, then it "logically" follows that stocks should be at new lows. Maybe they don't get there, but in the short-term that thought has to cross bulls' minds. They're holding positions up more than 10 percent from the low. If bonds make new 52-week lows...

About 50 percent of the rally from September 6 went poof after the CPI report. If bonds break to new lows it could all evaporate fairly rapidly.

The euro is not at a new low and has a couple cents to go, but the yen and yuan are close to one.

For bears there is some caution warranted because new lows beget new lows, but off the top of my head, I can't think of anything at a new 52-week low aside from TLT. That is a very important fact, but it isn't enough to say markets are a screaming short yet. Though as I type, ZB is a few ticks off its 52-week low. If I start seeing new 52-week lows, I will start pressing shorts.