UPDATE ON THE BROAD STOCK MARKET (5:00 pm EST)
Question: What could possibly spoil the nice "Santa Claus" rally we had on Wall Street only a few days after the holidays?
Answer: How about the Fed releasing the minutes of its last FOMC meeting which reveals its plans to drastically curb "easy money" policy with faster paced rate hikes and a significant reduction in its bond holdings?
The Fed's release of this information seems to be timed perfectly with our prediction of a major top in equity markets (based on cycles and technical analysis), and it certainly could be the trigger for a major correction now. We sold the NASDAQ short last Friday close to its top. That was also good timing as this index plummeted over 3% today. The DOW managed to make a new all-time high today before also dropping dramatically on the release of the Fed minutes. The S&P 500 did not make a new high before it joined the equity tumble with a nearly 2% loss for the day.
So it looks like a significant correction could be starting now, but it needs to follow through over the next few days to be confirmed. Sometimes dire Fed announcements are shrugged off the very next day as Wall Street traders are a notoriously fickle lot. While the DOW and S&P 500 look like they could snap back from here to make new highs, the NASDAQ's drop looks more serious, and I think this index is probably leading the trend for a more serious correction in all three indices. We will hold on to our short position in the NASDAQ for now.
Question: What could possibly spoil the nice "Santa Claus" rally we had on Wall Street only a few days after the holidays?
Answer: How about the Fed releasing the minutes of its last FOMC meeting which reveals its plans to drastically curb "easy money" policy with faster paced rate hikes and a significant reduction in its bond holdings?
The Fed's release of this information seems to be timed perfectly with our prediction of a major top in equity markets (based on cycles and technical analysis), and it certainly could be the trigger for a major correction now. We sold the NASDAQ short last Friday close to its top. That was also good timing as this index plummeted over 3% today. The DOW managed to make a new all-time high today before also dropping dramatically on the release of the Fed minutes. The S&P 500 did not make a new high before it joined the equity tumble with a nearly 2% loss for the day.
So it looks like a significant correction could be starting now, but it needs to follow through over the next few days to be confirmed. Sometimes dire Fed announcements are shrugged off the very next day as Wall Street traders are a notoriously fickle lot. While the DOW and S&P 500 look like they could snap back from here to make new highs, the NASDAQ's drop looks more serious, and I think this index is probably leading the trend for a more serious correction in all three indices. We will hold on to our short position in the NASDAQ for now.
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