Last week Recap – Another bearish finish after the Fed hikes rates. Monday started off ok with a gap down and strong close to fill the gap left from Thursday into Friday. The market gapped lower on Tuesday(SPY) and made a new swing low but managed to recover to 5 cents away from the previous Friday’s open. A gap higher on Wednesday gave the bulls some hope but that quickly faded once Powell took center stage. Thursday and Friday were pretty ugly bear days with new lower lows and lower closes on both days. The VIX(volatility index) spike to 32.31 but dropped back to close at 29.92 after the market found a little buying towards the end of the day on Friday.
Market Outlook after FED Fallout (Sep 28, 2022)
After taking June’s lows ($3636) what’s next? – During Tuesday’s session, stocks gave up a large early gain and the S&P 500 fell below its intraday low from June, which was the previous market bottom. The Dow and S&P 500 closed lower for the sixth straight day, while the Nasdaq Composite ground higher by 0.25%. All three major averages are now in bear market territory. Several technical metrics show that the stock market may be oversold, but some on Wall Street are worried that investors have not priced in an earnings slowdown and the impact of the Federal Reserve’s rate hikes. The S&P 500 breaking below its previous low is a key indicator for some that stocks still have further to fall.
2 critical levels to watch out next to figure out which direction market will move. On upside $SPY needs to break out $371 or downside $SPY needs to breakout $363. On either side there is a possibility to move another $8 move on breakout. As of Tuesday eve, Market future shows big red. The $SPY is trading around $361. Highly possible that by end of this week, we may see $355 on SPY.
Below is 4 hr chart showing $SPY box range break that can go towards $355 range soon.
Some of the FED comments from last week (Summary)
Fed Comments from last week:
13:33 (US) Fed’s Bostic (non-voter): We do know that some bottlenecks are staring to ease, but inflation is too high; There will likely be some job losses; We are going to do everything we can to avoid deep, deep pain – We need to narrow the gap between supply and demand- Demand is starting to shrink and that will ultimately pay dividends in inflation levels- Think Fed can tame inflation without substantial job losses given the economy’s continued momentum.
23 Sep 15:33 (US) Fed Vice Chair Brainard: Inflation is very high and its hitting low-income families hard – Source TradeTheNews.com
23 Sep 14:03 (US) Fed Chair Powell: We remain committed to using our tools – opening remarks Fed listens to event – Deal with exceptionally unusual disruptions – Economy may be entering new normal after a pandemic
21 Sep 14:39 (US) Fed Chair Powell – The main message has not changed since Jackson Hole; For reducing rates we would want to be very confident inflation is moving back down to 2% – We may slow the pace of hikes at some point to assess effects that have occurred due to initial hikes – There is a possibility we would go to a certain level of rates and stay there for some time but we’re not there yet; There is still a ways to go on rates – Deceleration in housing prices is a good thing; We may have to go through a correction in the housing market to get back to normal price growth – Likely rates will get to levels seen in the SEP
The market longer term outlook still not looking good. As per many chart analyst the $SPY can hit $3100/$3200 level by year end or early next year before it can call out for bottom. Market won’t go in one direction for sure. After a brutal selling in month of September, once Market reached to $355 range, it is due for a near term bear rally. Last time when that happen, market tried to go at least towards 50 day moving avg. This time I am expecting a bear rally in month of October around earning season possibly to get to 50 day moving avg but then it will continue downhill depending upon FED policy and economic data. For more information on how to play Iron Condor and butterfly options or to hedge against your long term positions, reach out to us at FINXDATA.com.