This week we had the last meeting of the Federal Reserve. The central bank raised rates of interest by 25 basis points and indicated that we’re probably approaching a break. You may imagine that the stock market (SPY) could be pleased… But I see something else that annoys me. Read.
(Please see this updated version of my weekly commentary originally posted on March twenty thirdr&d2023 in POWR Newsletter Shares under $10).
Market Commentary
So, along with the POWR services I run, I also run an options trading newsletter called Income Trader.
And our selections are based on this amazing, patented Charles Dow award-winning algorithm. And this week there was something weird about all of the buy signals it was giving…
About half of the tickers are short ETFs.
Now, with this algorithm, when a stock is on a “buy” signal, it’s always a sign that its price is more prone to go up within the near future. That is on no account a guarantee, but what the numbers show over a decade.
And while ETFs tracking different asset classes (bonds, gold, etc) appear on our list every so often… we never see short/reverse/leveraged markers.
Even in previous dips like what we saw in 2022, I do not think I’ve seen them.
I will be honest; I do not quite know what meaning…
But this week we made reverse fund buys for numerous major groups – large cap stocks, mid cap stocks, Russell, S&P 500 (SPY), real estate, China, European stocks, consumer goods, emerging markets – and that does not sound… good.
I feel it’s a wierd time within the market. Individuals are nervous and potentially bearish, and we will see that reflected in the outcomes of this algorithm.
And I’m not often a finger-pointing person… but I feel lots of this nervousness is a direct results of the Federal Reserve’s recent actions.
In 2022, the Fed looked as if it would have a straightforward goal and a straightforward plan: we were going to curb inflation by raising rates of interest.
At the moment, our best fear was that we’d fall right into a recession… and there have been many other voices and indicators confirming this potential.
But we have been on this journey for a yr now and all of the Fed has been capable of do is drop inflation barely and break a number of banks.
The labor market stays unexpectedly tight. And the central bank plan, which once seemed very predictable, appears to be in all places.
What’s going to the rates appear to be in three months? We won’t know needless to say because Powell’s plan is that “it depends upon what the most recent economic data looks like.” It’s a really reactionary plan.
On the latter meeting, Fed members finally agreed to boost rates of interest by 25 basis points, although Powell indicated in a press conference that that they had considered a 50 basis point hike until the banking crisis hit.
Speaking of which, Powell also shed some light on it, saying there have been only a number of troubled banks, but the remainder of the economic system was “healthy and resilient”.
Many recent financial markets are focused on the idea that there’ll only be one rate hike in the longer term, because the key issue of “rises in progress” has been faraway from the official communiqué.
The median of their forecast also points to only yet another hike this yr.
Still, stocks are up again today, with the S&P 500 (SPY) is trading back above its 200-day moving average, which we often see when the situation is bullish.
But I’m skeptical.
Perhaps it’s because I used to be attempting to help our 20-year-old nanny sort through the handfuls of Taylor Swift ticket “sellers” who are literally just scammers attempting to steal her hard-earned money. (Seriously, what’s fallacious with people?)
Perhaps it’s because I just needed to file an FTC fraud report with an organization purporting to sell refurbished Herman Miller chairs.
Perhaps it’s because my trading algorithm does some really weird stuff.
Perhaps it’s because I am unable to imagine how one other 25 basis point hike could suddenly slay the inflation beast (still over 6%), or how Powell could downplay the issues of the banking system, even after the recent collapse of Credit Suisse, a significant global bank. system (G-SIB).
I’m not normally a pessimist, but I even have a sense we’re in for an additional correction… Let’s hope I’m fallacious.
Application
In the meanwhile now we have about 50% of our portfolio in money and 50% invested. That is the most effective position we might be in in the mean time.
I’ve heard some analysts say we’re not going to see an enormous capitulation moment because all these potential “sellers” have been out of the way in which for months. Based on everyone I do know… that sounds pretty good.
We’ll proceed to observe the market, but I feel the stuttering step will proceed over the following few weeks until we all know what’s really occurring next.
What to do next?
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Margrave Meredith
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares closed Friday at $395.75, up $2.58 (+0.66%). 12 months up to now, the SPY has gained 3.88%, in comparison with the share increase of the S&P 500 index over the identical period.
In regards to the Writer: Meredith Margrave
Meredith Margrave has been a renowned financial expert and market commentator for the past 20 years. He’s currently the editor of POWR increase AND POWR shares below $10 newsletters. Learn more about Meredith’s past, with links to her latest articles.
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