Bulls gave up Wednesday’s early gains after the Federal Reserve signaled for more rate hikes in 2023, states Jon Markman, editor of Strategic Advantage.
The S&P 500 (SPX) skidded back to 3,995, a decline of 0.6%. Following the Federal Open Market Committee meeting, Chairman Jerome Powell told a news conference that he wants to see more data before ending the current policy of rate hikes.
It was welcome news in the bear camp, and they promptly sent stocks reeling. Bears may be overplaying their hands, though. The Fed needs to keep up the appearance that it is committed to fighting inflation. In reality, bond traders have been slashing rates since the previous FOMC meeting in November. Since the Ten-Year Treasury yield is down 75 basis points, to 3.5%.
Traders are betting that the Fed is making a policy error, pushing rates too high, too quickly. They are probably correct. In the interim, the decline on Wednesday puts the benchmark S&P slightly above the 20-day moving average at 3,970. However, true support is 3,860, the 50-day moving average.
I’m looking for moderate weakness toward that level. Resistance remains at 4,030, then 4,094.
Today starts our new Nasdaq 100 (QQQ) timing model, which attempts to earn gains of 5% to 15% from multiday holds of exchange-traded funds that track the volatile growth company benchmark. If the model recommends a short position, we use inverse ETFs that can be unleveraged or two times leveraged. The current position is flat, which calls for the WisdomTree Bloomberg Floating Rate Treasury ETF (USFR), a cash alternative.
