CPI Inflation Worries Market But 'Dumb Money' Remains

The bulls showed signs of fatigue on Monday afternoon as investors await a CPI report prior to the open on Tuesday morning. After a good start, the selling picked up and accelerated into the close. The Nasdaq 100 QQQ went from green to red and led to the downside with a drop of 0.5%. Only about 40% of stocks advanced, but there were more than 550 new 12-month highs as pockets of speculation continued in secondary stocks.

There was no specific news triggering the intraday reversal to the downside. Bulls looked tired after the big run last week, and there is some nervousness about the CPI inflation news due on Tuesday.

The last few CPI reports have been a positive catalyst for the market as the numbers have been consistently better than what the bears have been forecasting. There have been some upticks recently, but they are not as big as some economists have predicted.

The market has become less concerned about inflation recently after the weak employment news, which creates a different dynamic for the CPI report on Tuesday. There is a greater chance that an inline number may not be good enough at this point.

Under the surface of the market, there is still a surprising amount of strong trading in secondary stocks. Once again, my list of names that moved up more than 10% was very long, but it is mainly retail investors driving the action. That tends to be viewed as a contrary indicator by some folks on Wall Street who view small investors as "dumb money," but this action can persist far longer than institutional Wall Street thinks it should.

A pullback on the CPI report on Tuesday would likely be healthy, but you can bet that the serial top callers will be loud once again.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.