The Fed and the Months Ahead. Plus Vote on the Next Round of Blog Improvements!
Earlier this year in the daily alert service we told subscribers to not trust the Fed.
Trust inflation instead.
Late last year it would have been quite a shock to the market to immediately go from a .75% Fed funds rate expectation for the end of 2022 to 4.75%.
This would have caused an immediate market crash ahead of the Ukraine invasion and another wave of the pandemic. Because of this, we have been arguing who really knows how high the Fed funds rate will go?
Its not the job of the Fed to always tell financial markets the truth. Its there job to have monetary policy and make statements that support the job market and lead to stable prices which they have decided is about 2% inflation. A sudden market crash and market dislocations is not so good for the job market and price stability.
Today is another example why its good to trust inflation data and not the Fed statements. One of the most hawkish Fed members, Bullard, came out this morning with a graph that shows the Fed funds rate may have to go to 7% in the not-too-distant future.
This initially hit the market hard early but then the market recovered later in the morning to have only a modest down day. This is likely due to inflation numbers being much lower than expected for October with a pretty clear trend now to the downside.
The market averages are coming down on lower volume to test some key moving averages on a daily chart. Perhaps setting up another push higher in the weeks ahead before we finally see serious erosion in the labor market. Jobless claims are one of the better indicators of a recession starting so we are watching those closely.
Trades that are Working
All the trades featured in the alert service this week are in a profit position for those using our entry trigger price. One of the strongest bull flags in the market just got off to a good start after being featured last night.
Are we really excited though about this market? Not really. We still have a lot of volatility with a lot of hit or miss trades. The Nasdaq and S&P 500 are still below declining 200 day moving averages. A severe recession next year could mean this is still the case until at least the later half of next year.
However, a severe recession would also likely lead to a market crash where we can trade put options and have some terrific opportunities in the market downdraft. Generational buy-and-hold opportunities could surface when the dust settles after a crash.
Meanwhile, a more mild recession may already be priced in and we could be looking at a market uptrend through a mild recession.
Forgotten Bullish Technical Factors
A couple positives not being discussed much right now is how the market is moving higher on days with much stronger volume and pulling back on much lower volume. This is a hallmark of a bull market.
The other positive is that the indices are bouncing strongly off the uptrend support line drawn by connecting the lows over the past 12 years or so. The yield curve has inverted but the market normally rallies after the inversion for 6 months or more as it did after inverting in 2006 and 2019 for instance. We mentioned this in 2019 in the alert service before a strong rally really got going.
Some even say that yield curves do not matter much except for the global yield curve nowadays.
In any case, we should see some great opportunities either long or short in the months ahead. Long if the market uptrend continues with more short opportunities if the market trends lower.
Vote on Your Favorite Blog Topics, Videos and Service Upgrades!
2023 could be one of the best years to trade in a long time. If we only see a mild recession, the market averages could easily rally to test the highs and a little beyond with falling bond yields. A severe recession could lead to great put option opportunities and the best long-term opportunities in a generation after the dust settles.
So now is a great time to vote on your favorite improvements and upgrades to the blog and services. We are busy getting ready the next round of blog and service improvements just in time for what could be a great year to trade!
If you take the survey today, you will receive a special deal only available for those who take the survey. Due to high traffic, the survey site was down on Sunday evening for subscribers who received the email but is now available to fill out along with the special offer.
