Inflation, Rates, and Oracle: The Market Is Changing Its Tune

The number is out, and it hit like a cold shower: US inflation has risen to 4.2%, a three-year high. At the same time, Oracle announces a record quarter... and its stock is plummeting. Do you see the paradox? The market is shifting its logic, and it's crucial to understand what's happening. I'm going to break it all down for you, from the new fear about interest rates to my own trading strategy for the coming days.

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Inflation Is Back, and It Changes Everything

Yesterday, Wall Street fell, and for good reason. The inflation statistic was expected, and it surprised everyone on the upside. For months, the only question was, 'When will the Fed lower rates?' Now, the narrative has completely flipped. The question has become, 'Aren't they going to raise them to cool down inflation?'

To explain the idea simply, imagine inflation is a fire that's burning too brightly. To control it, you have to cut off its oxygen. That's exactly what central banks do by raising rates. Why? Because high, risk-free guaranteed rates encourage investors to put their money in the bank rather than injecting it into the economy through businesses. Basically, less fuel means less growth, and inflation eventually comes down.

The problem is, it's a very delicate balance. If you remove too much oxygen, you can suffocate the economy and cause a recession. It feels like the engine, especially the AI engine, is running way too fast, just like US wages. We'll see what the Fed says next Wednesday, but one thing is certain: the tone has changed.

The Oracle Case: A Warning for AI?

Oracle's latest news is a perfect example of this new climate. The company reported record quarterly results: nearly $20 billion in revenue, a cloud sector up by almost 50%, and a massive order backlog of $638 billion. Normally, this would be cause for celebration. But it wasn't. The stock dropped 7% after hours.

The reason comes down to one word: cash. Oracle burned through $24 billion in cash in one quarter and announced it wants to raise another $40 billion. That's the problem with AI. It consumes a huge amount of money. To fulfill orders, you have to burn cash first.

And if interest rates rise, borrowing tens of billions suddenly costs much, much more. A 0.50% increase on $40 billion adds up quickly. If rates go up, it could deal a major blow to the AI sector, which would then have to rethink its investments.

My Technical Analysis and Trading Plan

Faced with all this nervousness, how do I see things for the indices?

• On the Nasdaq, it's pretty amazing to see that the price hit the week's support 1 level perfectly and bounced off it. It's beautiful! Be careful, if it hits it a third time, I will absolutely not try to play the bounce. The risk of a breakdown becomes too great.

• The S&P 500 is much weaker. It's far from its previous week's lows and remains stuck under a very clear bearish trendline. For now, we don't touch anything.

• The Dow Jones, which had been holding up very well for weeks, finally took a major hit yesterday. Everything went down.

Personally, although I'm a natural buyer, my ideal scenario would be a continued drop today and Friday. I will be on high alert Friday evening, half an hour before the US market close, watching for a potential rebound. It's one of my 'golden combos,' so no need to invite me out; I'll be in front of my screens. 😉

The History Lesson: Why Weekends Are So Risky

To wrap up, a little historical anecdote that resonates particularly today. On Saturday, October 6, 1979, Paul Volcker, the newly appointed Fed chairman at the time, called a surprise press conference. On a Saturday night! It was to declare all-out war on inflation. The result: he raised US interest rates to nearly 20%.

He succeeded in crushing inflation. However, it caused a massive recession. It's a bit like having a sore finger and deciding to cut off your hand to solve the problem. Radical, but effective.

Above all, remember this: the biggest shifts, major political or economic decisions, and even wars, are often decided or triggered over the weekend, when the markets are closed. This is the major risk when you're swing trading and holding positions. Before some tragic events, like 9/11, we saw abnormal market movements in airline options. Some people knew and took advantage of it. It's a cynical reality of the markets.

Conclusion

In summary, we are entering a phase where inflation is once again the number one topic. The viability of the AI's cash-hungry economic model is being questioned by the potential for rate hikes. And never forget the 'weekend risk,' where everything can change in an instant. Caution is therefore advised, and you must remain very attentive to signals, whether technical or macroeconomic. Be careful in the markets!

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