BRIEF UPDATE ON THE BROAD STOCK MARKET and the FOMC MEETING (3:00 pm EDT)
Today the S&P 500 made a new all-time high (as did the DOW), but the NASDAQ remains well below its all-time high (18,671 from July 11). Thus our strong bearish divergence signal is still in place, and it is happening inside a reversal zone. This supports the idea of an imminent downturn in this market. But this week's FOMC meeting (which starts today and ends Wednesday afternoon) may have a stronger than normal influence on all financial markets and could change this bearish view.
There is a lot of uncertainty about what the Fed will do and say on Wednesday afternoon. While most analysts expect a rate cut (the first one in four years), there is much debate on whether that cut will be a quarter (0.25%) or one half point (0.50%). After any rate cut announcement (at 2 pm tomorrow), the Fed will release a statement with new economic projections including the infamous "dot plot" that shows where rates could be headed over the next few years. Fed Chairman Jerome Powell will then give a news conference at 2:30 pm to discuss all of this.
With the markets on edge and divided on what could and what should be a proper rate cut to sustain a "soft landing" of the economy, we could see a strong reaction (up or down) in equities (and even other markets) to ANY rate cut and rhetoric from the Fed tomorrow. We also need to keep in mind that the Fed most likely does not want to tank the market just before the presidential election, so there is a strong incentive for Mr. Powell to not appear too hawkish in his rhetoric. But as I mentioned in yesterday's blog, even if the Fed and Powell are dovish tomorrow, the markets are rallying and may have already priced this in, and we could see a classic "buy the rumor, sell the news" scenario that could produce at least a short-term sell-off. We will have to wait and see how this unfolds.
I am still holding my short position in the broad stock market (DOW) for now.
Today the S&P 500 made a new all-time high (as did the DOW), but the NASDAQ remains well below its all-time high (18,671 from July 11). Thus our strong bearish divergence signal is still in place, and it is happening inside a reversal zone. This supports the idea of an imminent downturn in this market. But this week's FOMC meeting (which starts today and ends Wednesday afternoon) may have a stronger than normal influence on all financial markets and could change this bearish view.
There is a lot of uncertainty about what the Fed will do and say on Wednesday afternoon. While most analysts expect a rate cut (the first one in four years), there is much debate on whether that cut will be a quarter (0.25%) or one half point (0.50%). After any rate cut announcement (at 2 pm tomorrow), the Fed will release a statement with new economic projections including the infamous "dot plot" that shows where rates could be headed over the next few years. Fed Chairman Jerome Powell will then give a news conference at 2:30 pm to discuss all of this.
With the markets on edge and divided on what could and what should be a proper rate cut to sustain a "soft landing" of the economy, we could see a strong reaction (up or down) in equities (and even other markets) to ANY rate cut and rhetoric from the Fed tomorrow. We also need to keep in mind that the Fed most likely does not want to tank the market just before the presidential election, so there is a strong incentive for Mr. Powell to not appear too hawkish in his rhetoric. But as I mentioned in yesterday's blog, even if the Fed and Powell are dovish tomorrow, the markets are rallying and may have already priced this in, and we could see a classic "buy the rumor, sell the news" scenario that could produce at least a short-term sell-off. We will have to wait and see how this unfolds.
I am still holding my short position in the broad stock market (DOW) for now.
RSS Feed