Thursday Morning Market Update
What To Do After The Fed
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The Markets
Yesterday, Jerome Powell spooked the markets by suggesting that inflation is still an issue, hinting that 2025 may see fewer rate cuts (2) than previously expected (4). Stocks sold off sharply, with IWM leading lower, losing 4.4% for the day.
Now what?
While no one could’ve predicted the speed or magnitude of this selloff, we are fortunate that for several weeks, the consistent message on these pages has been patience and a mindset of ‘doing less.’ So, we are ready to seize opportunities as they arise.
What has changed?
Things will probably be more difficult for the smaller cap and more interest rate-sensitive issues. So, the recently narrowing leadership (large-cap tech / Mag 7 type names) will probably gather even more attention. However, we will want to be open to opportunities from all areas.
Before we drill down, let’s look at some bigger-picture charts.
The Charts
At its peak yesterday, the VIX (Volatility Index) had jumped more than 120% from its recent lows. A quick spike in ‘The Fear Index’ often marks a short-term bottom in stock prices.
This chart illustrates some recent similar events.
Just because it has happened many times before doesn’t guarantee it will happen again. But it is a possibility.
Support Levels
QQQ is at a critical level. Around $515, we have:
the 21-day MA
the Election rally AVWAP
and the November pivot high
The uptrend from August lows
So, the chart at $515 is pretty clear.
Above = business as usual.
Below = market changed.
SPY has a similar look with a trendline nearby. But it's below the 50-day MA, with only one corresponding support level - the October pivot high at $585.91.
Small caps, The Dow 30, and the equal-weight indexes are all a mess. We’ve already looked at DIA being down nine days in a row. While the tenth day started strong, it ended much differently.
DXY Finally, the Dollar. Remember that sometimes this seems to matter, and sometimes it doesn’t. Looks like it just became a lot more relevant again. We’ll take a longer look in the Weekly Chart thread on Saturday. However, dollar futures are rising out of this range, and staying there would not be a tailwind for stocks.
The Trade
The big names are holding up better: AAPL, NVDA, TSLA, etc. And we have a very clear level in QQQ to watch with them.
The smaller companies may be more challenged but don’t count them out.
Two examples:
ARKF - a name/sector we’ve been watching for a while. It hit the AVWAP from the pre-election pivot low yesterday. Not a great look, down ~6.5% yesterday, below the short-term MAs, and a recent pivot high.
But, at the AVWAP, the lower Bollinger Band, and with RSI trying to hold the bullish upper half, maybe it presents a setup with a very clear risk management level.
TOSTÂ Again, there is nothing to rush into. But this potential bullish falling wedge pattern forming just above the 50-day MA is worth watching.Â
Whatever you do, continue to manage risk with proper stops and position sizes.
The Disclosures
***This is NOT financial advice. This is NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.
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