UPDATE ON THE BROAD STOCK MARKET (5:00 pm EDST)
This month's two day Federal Reserve meeting started today and ends tomorrow afternoon at 2:00 pm EST. Most analysts are expecting the Fed to maintain their dovish stand on interest rates (i.e keeping them near zero) to help sustain equity markets during the ongoing COVID-19 pandemic. If they do this, Wall Street should be happy, and the current rally in the broad stock market should maintain its momentum. If the Fed hints at economic recovery and future interest rate raises, however, the market could respond with a downturn. Even without hawkish rhetoric, the market, already anticipating no foreseeable increase in rates, could take a corrective dip after the announcement in a "buy the rumor, sell the news" scenario.
The reason I am suggesting these possible reversals is because we are coming to the end of a reversal zone (March 9 - 18) that technically ends on Thursday, and equities have been rallying strongly into it. Therefore, our cycle and technical analysis is also predicting a possible reversal down from a top, The big question here is how serious could that correction be. Sure, this market is ripe for a serious correction any time now; but as I have noted in my previous blog, the current medium-term cycles in our three indices (DOW, S&P 500, NASDAQ) are probably young and bullish and may not be ready to top out just yet. Both the DOW and S&P 500 are making new all-time highs this week, so any bearish divergence between them is now negated. The NASDAQ, however, is still well below its all-time high (as we thought it would be this week), and that does give us a bearish divergence signal against the other two indices. We therefore have mixed signals in this current market.
I am going to remain on the sidelines and refrain from trading around the potential volatility surrounding a Fed meeting. My guess is that we could see a minor correction after the Fed's statement, and then a resumption of the rally. There is a target around 4,000 in the S&P 500 that I would like to see before considering any short selling. If we don't get there and the market turns down, we might also consider selling short if the S&P 500 breaks below 3,760. Staying on the sidelines of the broad stock market for now.
This month's two day Federal Reserve meeting started today and ends tomorrow afternoon at 2:00 pm EST. Most analysts are expecting the Fed to maintain their dovish stand on interest rates (i.e keeping them near zero) to help sustain equity markets during the ongoing COVID-19 pandemic. If they do this, Wall Street should be happy, and the current rally in the broad stock market should maintain its momentum. If the Fed hints at economic recovery and future interest rate raises, however, the market could respond with a downturn. Even without hawkish rhetoric, the market, already anticipating no foreseeable increase in rates, could take a corrective dip after the announcement in a "buy the rumor, sell the news" scenario.
The reason I am suggesting these possible reversals is because we are coming to the end of a reversal zone (March 9 - 18) that technically ends on Thursday, and equities have been rallying strongly into it. Therefore, our cycle and technical analysis is also predicting a possible reversal down from a top, The big question here is how serious could that correction be. Sure, this market is ripe for a serious correction any time now; but as I have noted in my previous blog, the current medium-term cycles in our three indices (DOW, S&P 500, NASDAQ) are probably young and bullish and may not be ready to top out just yet. Both the DOW and S&P 500 are making new all-time highs this week, so any bearish divergence between them is now negated. The NASDAQ, however, is still well below its all-time high (as we thought it would be this week), and that does give us a bearish divergence signal against the other two indices. We therefore have mixed signals in this current market.
I am going to remain on the sidelines and refrain from trading around the potential volatility surrounding a Fed meeting. My guess is that we could see a minor correction after the Fed's statement, and then a resumption of the rally. There is a target around 4,000 in the S&P 500 that I would like to see before considering any short selling. If we don't get there and the market turns down, we might also consider selling short if the S&P 500 breaks below 3,760. Staying on the sidelines of the broad stock market for now.
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