Tech bears got walloped on Wednesday when the Federal Reserve sounded a dovish tone, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 added 2.2%, to close at 12,363. The bad news for bears may only be getting started. Bears spent most of the past year arguing that the Federal Reserve was going to keep raising interest rates to kill inflation. In their view, stock valuations were too high because corporations would be forced to cut capital expenditures. Bulls began arguing in October that the Fed was making a policy error and that its battle with inflation was in the rear-view mirror.
The yield for the Ten-Year Treasury Bond subsequently collapsed from 4.3% to only 3.5%. Fed Chairman Powell acknowledged on Wednesday that the disinflation process is underway.
Bears are in trouble. The Fed is no longer their friend. Bears should now concede a rally to 13,720, a test of the August 2022 high. This advance may take several months. There is support for the benchmark NDX at 11,710, the rising 20-day moving average.
The QQQ Loop: Current position is the WisdomTree Floating Rate Treasury ETF (USFR), a cash alternative. Now sell enough to make the following trade:
- Place an order to buy ProShares Ultra QQQ (QLD) at 43.70 lmt gtc.
- If filled, set up to sell half of the position at $49.30 lmt gtc, and a half at $58.20 lmt gtc.
- If filled, place a stop loss order at $39.00 stp.
If this trade works, the potential upside targets are +13% and +33.2%. The potential downside risk is -10.7%.
