I won’t go into the specifics of the movie I saw over the weekend…
But let’s just say it was “Bearish.”
Much like the selloff that we might be facing in the coming week.
Federal Reserve Chair Jerome Powell spared no punches today about the state of economic data. He warned that interest rates would need to increase to combat inflation.
Isn’t it ironic that he had to explain to the Senate that inflation is hot… after all that money they spent last year.
What’s Happening Right Now?
As I’ve noted over the last week, the markets remain focused on key support levels of 3,990. That figure is the top of the channel from the trend of 2022. The trend of lower highs and lower lows dominated the landscape of last year’s trading.
Last week, the 3,990 level was critical, and the 200-day moving average acted as support after a year of acting as resistance.
But something is off in this market. As I’ve explained, in previous selloffs, we’ve witnessed short-term squeezes that last two to three days. This happened last year in April, August, and December.
Then, the markets took a nosedive. With the two-year Treasury bond now at the highest level since 2007, I have to anticipate that funds will be happy to collect risk-free returns and punt the equity risk.
Meanwhile, if we move under the 200-day moving average, I expect a steep departure from the “Buy the Dip” crowd that has furiously purchased off any downturn since October. That key point may also be where retail investors dump stocks indiscriminately.
As funds continue to dump stocks on the short-term bounces, we could see a dramatic acceleration of selling in the coming days.
First, Powell will speak to the House of Representatives tomorrow (a group that understands basic economics even less than sitting Senators).
On Friday, the U.S. jobs report will tell us the state of the employment market. That report should show job growth and higher wages as services inflation remains sticky.
Next week, we’ll have an update on the Consumer Price Index (CPI) and the Producer Price Index (PPI), which should also be elevated compared to the December report. And finally, Quad Witching occurs NEXT Friday.
I’m tilting bearish with these key resistance lines approaching and questions appearing about the state of the economy.
What to do Right Now
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Market Momentum is Red
We’ve added our hedge position with the Proshares S&P 500 Short ETF (SPY) again for the Tactical Wealth Investor. We’re also taking gains. This feels very similar to the April, August, and December selloffs, which means this market could move MUCH lower, quickly. You’ve been warned.