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9/22/22 Hawks Take Flight and Bears Attack

News:

Yesterday markets went on a wild ride.

Before The Fed’s rate hike announcement, stocks traded in a narrow range.

The new Fed rate is 3 to 3.25%, a .75% increase, dropped at 2 PM, and the markets sank deep into the red.

The Fed rate now stands at its highest level in over 10 years.

Chart showing interest rates over the past 10 years.
Chart by tradingeconomics.com

As Fed Chair Powell took the stage, the market swung into the green.

But the rally was short-lived, and the markets settled at their low. A decisive win for the bears.

  • Dow Jones -1.7%
  • Nasdaq -1.8%
  • S&P 500 -1.7%
  • Russell 2000 -1.4%

Powell’s Word

Photo of Jerome Powell speaking to crowd.
Powell – Image from CNN

Here are the highlights from Powell’s Speech:

  • “Hope for the best, plan for the worst.”
  • “We haven’t … [began] to see inflation come down”
  • “We need to continue [with] large [rate] increase[s]”
  • And “We will keep at it until the job is done.”
  • The impact on jobs is “very likely some softening of labor market conditions.”

These remarks were much more hawkish than the market anticipated. But generally in line with Powell’s previous messaging.

  • In his words, “My main message has not changed since Jackson Hole.”

Sector Round-Up

All 11 sectors closed the day red.

The smallest loser…

  • Consumer Defensive (XLP) -0.4%

The biggest…

  • Materials (XLB) -2.2%
  • Consumer Discretionary (XLY) -2.4%
  • Communications (XLC) -2.5%

Technicals:

The major indexes broke down out of their respective trading zones.

But the VIX settled under 28 … again.

Some are arguing the indicator is broken. For us, the jury is still out. The VIX is always relative, so long-term historical levels aren’t always the best gauge.

VIX chart, key levels 25 & 28 marked
VIX Daily Candles – Chart via thinkorswim

What we know today is that it’s struggling to move higher. This gives the bulls a glimmer of hope.

Sooner or later, the market will bounce. We’ll be watching to see if it bottoms or continues lower afterward.

Timing:

The next FOMC meeting is on November 1 & 2.

Can you believe…?

October is only 7 trading days away. And while it’s famous for crashes, the month has a long history of killing bear markets.

We continue to believe a major Q4 rally may still be in store.

Watchlist:

*Low Float
^Open Position

*SLNG on watch
*BWEN support at $3.50
*TNK on watch
FENC support at $7.50
ADN support at $4
SAVA support at $35
DCPH support at $18
RVNC support at $25
FREY support at $14.50
^SGML support at $25
NAT support at $3.35, resistance at $3.50
^GERN support at $2.50

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