One Inflation Indicator Shows Biggest Decline Since 1950

For those inflation hawks, I don't want to rain on your parade, but the CPI figures released this morning showed that overall CPI fell -1.3% year-over-year, which is the largest decline since 1950.

That's quite a statistic, and at the very least indicates that inflation is not a current problem and those that are microfocused on inflation are at least premature. I'm not saying inflation won't creep up at some point, but we are currently still battling with deflationary pressures, rather than inflationary.

A couple of items that weighed on sentiment and knocked stocks lower at the open were comments from FedEx (FDX) giving weak guidance, and a revised outlook from Standard & Poor's on the banking system.

FDX topped earnings expectations, but gave guidance that was well below the consensus forecast. Management said the rising fuel prices, and the slump in manufacturing make the current environment "extremely difficult" at least through November.

In the bank sector, S&P lowered its ratings and revised its outlook on 22 U.S. banks, citing less favorable operating conditions that exist.

Europe was also lower this morning, while Asia was mixed to lower overnight. The Times Online said the UK unemployment hit a 12-yr high in Q1, but the pace of decline is easing. The dollar is lower today, but that isn't helping commodity prices. Energy and materials stocks are suffering the biggest declines so far, while healthcare and consumer staples are positive on the day.

The 10-year yield is lower to 3.62%; the VIX is also lower to 31.91, after a big spike the last couple of days; and the put/call ratio opened at a very high 1.41. I cannot recall off the top of my head the last time I saw it that high, but it indicates that a lot of investors all decided to rush out and buy puts at the same time.

Trading comment: The market opened lower this morning, day 3 of weakness. But the extreme high reading in the put/call ratio makes me want to fade the early selling. I have taken some daytrading long positions in SPY, RIMM, and FCX for bounces. RIMM reports earnings tomorrow, fyi.

The market has moved further into oversold territory, and more stocks/sectors look like they are rolling over. This is likely why there was a rush to buy puts this morning, but with option expiration looming on Friday, this could add to the short-term volatility this week. Beyond that, I am still looking for a bit of a bounce into quarter-end.

long FCX, RIMM, SPY