The stock market has been falling since New Years in a sharp downtrend. Over the past two days it has rallied back up towards the down trendline and has a chance now of breaking out of it to the upside. That doesn’t mean a new bull market, but could bring a rally that lasts for several weeks if it were to happen.
You can see what I’m talking about on this chart of the S&P 500.
If the market does bust out here look I’d look for it to get up to the 2/3’s retracement point of the February low and December high. That’d be a resistance in the 4560 area. It could even go higher than that, but it has to breakout here for any of that to happen. It could just as easily drift for a few days and roll over again like it did at the end of February. This is what bear market action is like
What has people excited this morning, though, after the Fed meeting, is their predictions that came with the rate hike in their FOMC statement for a perfect scenario. Historically in hiking cycles the Federal Reserve has had to take interest rates above the rate of inflation to cause inflation to come back down. With annualized CPI at 7.9% it would take years of rate hikes at a slow pace to get up to there and quick hikes would scare people into selling stocks, so the Fed predicted that they only need to raise rates up to the 2.5% area to cause inflation to go away.
As CNBC explained, “The Fed now projects 4.3% PCE inflation in 2022, up from 2.6% in December. The central bank expects that to decline to 2.7% in 2023 and 2.3% in 2024, but those are also above the December projections.” They are looking for six more rate hikes this year and possibly three more next year and to be done in their projections.
This is a prediction of keeping rates low in regards to where inflation is now and caused stock market bulls to buy into the close.
Whether they can grab a hold of the market and turn this into a bigger rally remains to be seen.
A lot of ARKK type stocks are oversold and could easily bounce and still be way below their 150 and 200-day moving averages. For instance, look at HOOD.
HOOD could rally from here and go up to 25 and still be deeply in a bear market.
Or it could just turn back down tomorrow like it did Thursday or trade like it did last month.
That is the story for many stocks now.
For instance look at RIVN, which is in the Robinhood top 100 list and showing up almost daily as one of the most traded stocks among Fidelity account holders now too.
Turning away from the stock market gold stocks also got a big on the close and look constructive. Many foreign currencies, such as the Euro and Swiss Franc, look oversold enough to rally, which would cause the dollar to pullback, which should also be bullish for gold. The difference between buying something like gold and RIVN is with gold you are buying something in which the 150 and 200-day moving averages are now as support – you are buying a bull market – where with RIVN you are buying in hopes of a bounce that you’ll have to get out of or else you’ll end up a bagholder and the odds of such a bounce are like 50/50. The problem is most people in the markets today don’t even know what a bear market is, having gotten into trading after 2008.
-Mike
