Today is 124 market days from the 3/23 low. The Run from the Bottom has ended. I am now using shorter screens for new positions while we pinball around between the 20 & 50-SMAs.
As with aerodynamics, rising too rapidly causes loss of lift in the market when inflows falter and QE sleeps. Speculation is a function of FOMO which, as in all fun rides, must end.
Trading ranges dominate conditions as stocks seek support and stability. The whipsaw environment is likely HFT frontrunning the Fed. Reading up on “the Fed Drift” and its impact on stock prices may be helpful.
The NYSE open is red following Asia and the STOXX’s sinking with Powell not offering the “next dose of a secret solution” in “better than ever” QE. Today will be the 10th trading day of retracement by tech with XLK trapped between the 20-50-SMAs as seasonal weakness continues into October. Support for XLK is lacking in Stochastics, Williams %R, Volume and BOP and closed Wednesday at BBand 1-STD which does not appear to provide support.
Per the statement: “With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well-anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.”
The Fed’s news on Wednesday was that there is no real news about rates remaining at zero to “create jobs and inflation” as if 10-years of failure is about to be reversed. The statement expanded loopholes which failed to reassure global markets.
Powell has repeated that Congress needs to pass more “stimulus” which remains stalled in DC politics. It seems the Fed is the global policy driver as BOJ maintained low rate policy but is more optimistic about growth prospects, as well as Indonesia, Taiwan and the ECB.
Consumption has been supporting the economy due to the government payroll stimulus which has ended and unlikely to have Congress agree on any major extension prior to the election. Retail sales declined in August lacking the momentum that began in March. Building material/garden equipment, furniture, health/personal care, sporting goods/hobby, and grocery store sales month-over-month was weaker than seasonal norms, although the year-to-date change for each remains above average.
Transports are gaining momentum with a new high that did not hold at EOD for IYT. Still a positive. You can read the areas of support in the attached file.
Employers wanting staff back in the office are facing opposition. Apparently, returning to “city life” is no longer a draw.
Even if a vaccine is approved and the distribution system works as planned, cooperation among the public is doubtful as only 37% were innoculated during the ’17-’18 flu season. Covid-19 is what follows 18, 17, 16… While the initial reaction was likely justifiable given the “models,” once the primary model was discreditted, the shut down became political instead of science. Along with Fed injections, capital markets are messed up.
Oil fell back to $40. OPEC meets today about more cuts to reduce global stocks. Restricting output is hard as all members need more money and the USA holds the production trump card. With decades of excessive cash flow, OPEC were late to build refineries. Who needs whom has reversed.
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