Investors are breaking the cardinal rule of Wall Street
Before the previous meltdown in stocks, in early February 2023, we warned that investors were trying to fight the FED, breaking the cardinal rule of Wall Street. With the recent rebound in SPX and people trying to call FED’s bluff (again), this trend seems to continue. Today, so much anticipated FOMC meeting is here, and central bankers are expected to increase interest rates by 25 basis points. While this will likely bring the hiking cycle toward the end, it is important to remember that inflation is still running hot, making a case for elevated interest rates to stay here for much longer than many suggest.
As Jerome Powell noted multiple times in the past few months, the FED is hiking interest rates to cool off the economy. In some regards, the FED has succeeded, which is reflected in the banking crisis, rising unemployment, a slowdown in the housing market, growing delinquencies on loans, etc.
However, the rising stock market is not particularly achieving the same results, posing a threat to the FED, which is already in a tough spot. Moreover, the persistence of high-interest rates will put more weight on the U.S. economy, dragging it deeper into recession. Therefore, in our opinion, it is just a matter of time before the stock market starts cracking under the weight of tight monetary conditions. Accordingly, we stay bearish on the U.S. stock market and expect SPX to drift to $3 400 over the course of the coming months.
Illustration 1.01
Illustration 1.01 shows the daily chart of SPX. Currently, it is sitting just slightly below the sloping resistance. If SPX breaks above it, it will be bullish in the short term. Interestingly, the recent rebound coincides with the price retracing toward the 50-day SMA, which often represents a strong correction. Therefore, we will also pay close attention to the price action near these levels.
Technical analysis
Daily time frame = Neutral/Slightly bullish (very weak trend)
Weekly time frame = Neutral
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
As Jerome Powell noted multiple times in the past few months, the FED is hiking interest rates to cool off the economy. In some regards, the FED has succeeded, which is reflected in the banking crisis, rising unemployment, a slowdown in the housing market, growing delinquencies on loans, etc.
However, the rising stock market is not particularly achieving the same results, posing a threat to the FED, which is already in a tough spot. Moreover, the persistence of high-interest rates will put more weight on the U.S. economy, dragging it deeper into recession. Therefore, in our opinion, it is just a matter of time before the stock market starts cracking under the weight of tight monetary conditions. Accordingly, we stay bearish on the U.S. stock market and expect SPX to drift to $3 400 over the course of the coming months.
Illustration 1.01
Technical analysis
Daily time frame = Neutral/Slightly bullish (very weak trend)
Weekly time frame = Neutral
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
