A surprise uptick in producer prices threw caution in the wind as food prices jumped nearly three percent in the month of April. From the start stocks started lower, but maintained a tight range for much of the day until 2:30 EDT today. Sellers began to hammer the market lower only to find some footing just after 3:30 EDT. Volume was higher on the NYSE, but only marginally higher. NASDAQ volume was light on the session as the theme of light volume continued today. Once again small cap stocks led the market lower followed by the NASDAQ. While today’s market wasn’t overly alarming it does raise questions whether or not we’ll see a follow-through day or not on the NASDAQ. Longs should be somewhat vigilant with their holdings and keep to their sell discipline here. This market isn’t going to be easy as the choppy markets continue.
Weakness begets weakness and we continue to see this play out in the NASDAQ and Russell 2000. There is a reason trend following works and if you simply short weakness and go long strength over a long time horizon you will do quite well. Short term variances will certainly test your might to stay with the program. How many will abandon a strategy over a rough patch? So many will either switch to something else or give up all together just in time for a new trend to take place.
There was much made over today Producer Price index and especially regards to food inflation. We have been covering food inflation over the last several months and in today’s PPI report there was confirmation in a government number (CRB Food inflation index clearly shows inflation) we have food inflation. Here is the chart from today’s PPI figure:
Remember the Arab spring? It will be interesting to see how this plays out and if this rise in food prices will play out.
The Russell 2000 took out Monday’s low and it’s a sign of pretty significant weakness. Our other indexes remain above Monday’s low, but if that low is breached we could see a surge of sellers. Friday’s low is likely a bit more pivotal. We will not know until (if) we hit those levels. Be on the lookout.
Tomorrow we’ll get a read on hedonics based CPI. We wonder how hedonics can change food prices. Keep plugging.
