FED Freak Out

PUBLISHED Sep 24, 2022, 2:36:30 PM        SHARE

img
imgTom Hamilton

September 23, 2022 - If anyone thought that this market was strong or getting stronger, they had their “head handed to them” after Wednesday afternoon. Powell reinforced the FED Board’s hawkish stance that was stated earlier at Jackson Hole . . . fighting inflation and whatever it takes. Hopes of interest rate increases slowing and then going down in early 2023 were pretty much dashed. My old adage: “Weak stock markets react badly to bad news, while strong markets sluff it off”. Folks are nervous about corporate earnings. The “bottom line” is in fact the bottom line. Forward earnings guidance is generally not that good in a slow or receding economy.

This last rally was primarily driven by retail investor with FOMO** (Fear Of Missing Out)** clearly on their minds. Rarely do we see a ‘V’ shaped bottom and if we do, we also see big institutional volume coming in. This time there was only average volume. Very typically institutions need time to accumulate shares so as to not affect prices and this takes time. We’re not seeing that accumulation / base building phase yet.

My past anticipated move down to the 9400 level* (blue lines)* panned out OK, but what next? I’m of two minds:
Scenario A is we continue a little lower early next week then rally back up toward resistance at about 10565. And then begin the process of building a base via the double bottom scenario.

Scenario B is that we bounce around late next week with a minor recovery (a.k.a. head fake) then head steadily lower to 11500 via a selling climax where everyone gives up on heavy selling volume.

A clue as to which one might develop is the US Dollar. To simplify things, a strong US$ equals a weak stock market (yes, that includes crypto too). A weaker US$ would support a stronger / basing stock market. Precious metals, especially silver, will also provide some evidence.

And of course News is going to be a major driver. Coming up on 9/30 we have the PCE data which is an indirect measure of inflation, then 10/13 the latest CPI data. These are potential market movers in either direction. The Short Term Sector table will also provide an idea if money is flowing into or out of growth sectors or defensives sectors (a.k.a. risk on or risk off).

Hope this provides some perspective* (at least one guys view;* I can be wrong*) *of the market. Please feel free to comment. Have a good week. …………… Tom …………….. Price chart by MetaStock; table by www.HighGrowthStock.com. Used with permission. more sector data on: www.Special-Risk.net



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