Stagflation Risk Rises - Prepare To Close The Barn Door Before The Horse Bolts, Apple's AI Doctor
The stock market is facing the risk of stagflation as indicated by recent data, including concerning economic indicators released last week. The chart suggests the market is retesting recent lows, with potential for further downside. Momo gurus predict a successful retest and a new rally, but prudent investors should exercise caution given their track record. Market mechanics are currently supporting the market, but a break below support zone 1 could trigger more downside pressure. Quarter end rebalancing money flows are expected to be positive, offering a potential boost to the market.

To gain an edge, this is what you need to know today. Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Stock Market Analysis
The chart shows that this morning the stock market is again approaching the low band of support zone 1. The chart shows that the rally from recent lows failed just after crossing the 200 day moving average. When the stock market crossed above the 200 day moving average, legions of investors who believe in the myth of the 200 day moving average turned bullish. Those investors have now been whipsawed. The chart shows that the stock market is now retesting the recent lows. Retesting the recent lows is quite common. The real question is will the retest succeed or fail.
Momo gurus claim to already know the answer to the question. Momo gurus are contending that the retest will be successful and the stock market will launch a new rally. Prudent investors should keep in mind that momo gurus are wrong most of the time and momo gurus' real job is to persuade their followers to buy stocks. RSI on the chart shows the stock market has lost internal momentum. There is room for the stock market to go lower.
If it was not for aggressive buying due to market mechanics, this morning the stock market would have likely broken below support zone 1, falling rapidly towards support zone 2. Market mechanics continue to be to the upside with one exception. The exception is that if the stock market falls more going into 10 am ET, expect many momo crowd accounts to be hit with margin calls. Expect quarter end rebalancing money flows to be very positive the rest of the day.
Economic Data and Stagflation
Along with other data we have been sharing with you, the economic data released Friday related to University of Michigan consumer sentiment as well as the Fed's favorite inflation gauge PCE is highly concerning. The data from last week indicates stagflation. It is important for prudent investors to not get carried away based on data from only one week. It is important to wait for more data. In the meantime, it is important for investors to start learning about stagflation urgently. It is important to learn to close the barn door before the horse bolts.
There is potential for the data to turn nasty very quickly. If the data turns nasty and stagflation is sustained, a vast majority of investors will lose a significant amount of money. The reason is that by the time they recognize what is happening, the horse would have already bolted and it would be too late to close the barn door.
Investment Strategies
This is the reason it is very important to start learning how to close the barn door now. Here are the reasons closing the barn door is difficult: The only example of stagflation is from the 1970's and 1980's. If stagflation occurs now, it will be very different from the stagflation of the 1970's and 1980's.
In the public domain, there is a ton of information on stagflation – unfortunately, it is all driven by the experience of the 1970's and 1980's. There is nothing good out there that credibly looks forward to a totally different kind of stagflation that we may experience. Moreover, there is a lot of good theory out there, but there is almost nothing that in a practical way can guide investors.
The current deficit and national debt will make it very difficult to tackle stagflation if it persists. Keep in mind that when unfunded liabilities are taken into account, the national debt now stands at $1.34M for every household in the U.S. We are working on models to not let the scrooge of stagflation drain our readers’ portfolios, and at the same time, enhance your wealth.
The difficulty is that the investments that will protect your portfolio from stagflation are precisely the investments that will be hurt if President Trump continues with the current policies. This makes learning in advance even more critical. To benefit investors, an example from 2007 is in order. In 2007 when Wall Street was ultra-bullish, our call was that a crash was coming. In the 2008 great financial crash, the S&P 500 lost 50% of its value, and most portfolios lost 70% – 80% of their value.
Our protection band was at 100%. Through the judicious use of inverse ETFs, tactical trades, and short selling, we produced returns of 40+%. We are not predicting a crash at this time. However, the reference of 2007 is important because with the same signals, the individual performance investors differed dramatically. Those who built up their knowledge did well. Those who did not build up their knowledge suffered losses.