Stocks zoomed on a hint that the Fed might stop being so mean, so change in the trade balance, states Jon Markman, editor of Strategic Advantage.
Bulls finally won a Friday, due largely to ambiguous but dovish comments from a regional Federal Reserve official. The S&P 500 (SPX) jumped 2.4%, to 3,752. The benchmark index shot up 4.7% for the week, its best five-session string since June.
Before you get too excited, consider the context. The price spike in June was a bear market rally that lifted the S&P 500 18% off its lows, only to retreat last week to brand-new lows. It was a flash in the pan. Mary Daly, president of the San Francisco Fed, said early Friday that she wants to begin a discussion about the size of future rate hikes. That shift in tone was enough to send bears into full panic.
They bought stocks on Friday all the way into the closing bell. More importantly, bears left the path clear to advance to the next overhead resistance level at 3,800, and possibly the declining 50-day moving average at 3,890. To be fair, Daly is the only voice of many at the Fed. She is also not suggesting that the Fed’s work on inflation is complete. The Ten-Year Treasury yield was essentially unchanged at 4.22%.
We will know early Monday if the bears are going to concede further gains. Seasonal trends are positive, and a shallow decline early Monday would be a good tell that the easy trade is higher at this juncture.
The Strategic Trade: Continue to hold the WisdomTree Bloomberg Floating Rate ETF (USFR), a cash alternative. No target. No stop. When a new signal from our system emerges, we will recommend a levered ETF to take advantage. Coming soon.