- The S&P 500 rallied during the trading section on Friday, as traders start to bet on the idea of a softening Federal Reserve.
- We have a major interest rate announcement coming out on Wednesday, as the Federal Reserve will almost certainly raise rates by 75 basis points.
- That being said, the market also will be paying close attention to the statement afterwards, because that will be a huge indication is where we may be going next.
I think the market more likely than not will continue to be noisy, and between now and Wednesday could be difficult to navigate. Eventually, Jerome Powell will come out and reiterate the hawkish attitude of the Federal Reserve, so therefore I think it’s probably only a matter of time before we see a sell off. After all, the Federal Reserve is worried about inflation, not the stock market. While some economic indicators have slowed down a bit, we are nowhere near getting rid of inflation, and therefore you need to understand that the Federal Reserve still has a target of 2%, and we are well over 4 times that right now.
Sitting on the Sidelines
The 50-Day EMA underneath should offer support, and if we were to break down below it, then we could really start to break down. In that scenario, it could open a move down to the 3600 level, but quite frankly the market needs to be scared to make that happen. Yes, the Jerome Powell statement will almost certainly influence what happens, but I think given enough time we will have to drop, because quite frankly there’s no argument for higher stocks other than “the Fed might pivot.” In other words, if they do not pivot, this stock market is going to get smoked.
A break above the 3900 level could open the possibility of a move to the 4000 level, but I’m not holding my breath for that to happen. I recognize it could, but all it’s going to do is take some bad news to make that difficult to happen. Ultimately, this is a market that you need to be very cautious with and therefore I will be sitting on the sidelines until after the Federal Reserve announcement/statement coming out on late Wednesday. The risk is just not worth it.
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