Credit Master Jerome Has Spoken
The melt-up is cancelled!
Well… that was something else. To nobody’s surprise, the fed hiked by 75 bps today. What got the market all hot and bothered at the strike of 2p was a line from the printed statement that contained the phrase “cumulative tightening.” The market interpreted that as an indication that the pace of hiking will begin to slow down as the central bank allows the impact from the previous hikes to begin playing out in more of the data sets; which are generally lagging indicators. The S&P 500 ripped, metals ripped, crypto ripped.
Then Powell actually started talking and threw bucket after bucket of water on the bulls. The result was not pretty. The dollar index, which had traded down to 110 immediately following the release aggressively reversed and is now ahead of both the 50 day MA and 111.3 resistance:
While that was an incredibly impressive reversal in the dollar, there is still more resistance ahead to consider before we start throwing in the towel on some stonk longs. This is what I said for paid subs before the market opened this morning:
I am of the opinion that the dollar is going lower after the dust settles from FOMC. If there isn’t a hawkish surprise of some sort, I think the “pain trade” is going to be to the upside over the next couple weeks. Of course, I could be very wrong. I have been before. I will be again. But I’m going into FOMC with some risk on and some cash ready to buy some things I want.
While you could argue Powell was hawkish in his comments following the hike announcement, “cumulative tightening” was in there for a reason. The dust is now beginning to settle. There may be more pain tomorrow. But I’m watching a very specific level in the S&P 500 before I get too concerned. Here’s exactly what I did this afternoon:
Even though the S&P 500 gave back the 50 day MA, this chart is actually not broken yet. If anything, it’s setting up for the next bear rally:
I expect bulls to throw some dry powder at 3,725 tomorrow. This would be the middle of the Bollinger band support. I took the opportunity to add to a couple of my swing trades today. I added to my Netflix position:
There are two gaps I see on this chart. Either or both could get filled. Gap 1 is from April when the stock was in the $350 range. This is the gap that I definitely think should get filled if the broad market rallies. Gap 2 is from the October earnings release. That gap is closer to $250. Entirely possible NFLX heads down there and fills the gap at $250. But, it’s also possible that NFLX holds the 200 day MA at $268 and then resumes it’s rally to fill gap 1. I’m obviously betting gap 1 gets filled either way. I also went long Paramount Global (PARA) this afternoon:
This one is a very different looking chart but PARA has generally rallied following earnings reports. Even when the report was negative as can be seen in the company’s Q4-21 report back in February. While the company’s miss on revenue was pretty rough today, I think the 13% selloff is unwarranted given where the company’s growth is (streaming, increase in Paramount+ subs). I’m not going to say this is a long hold. But I think we’ll see the shares back above $18 this month.
The asset class that really took it on the chin the most may have been the metal miner equities. Of course, less than a day after I proudly proclaimed that I was ahead on the First Majestic trade, the market took it 8% lower just to check me. I already have a full allocation to this position and don’t want to get over-exposed to the idea but this chart still looks awesome to me.
Reminder; I’m just a schlub with a Fidelity account. I’m not a professional and I’m wrong a lot. But this is how I see things and what I’m personally doing. I’m never fully invested - there is always cash on the sidelines for dips. There aren’t many fundamental reasons to buy stocks broadly. But when you’re in a bear market, there are many opportunities to make good money swinging relief rallies.
It is my belief that the S&P is still in a bear market rally, and a really hated one at that. Until 3,725 breaks on a close, I think dips are broad market buys. We’re close but we’re not there yet. These things generally test limits. Being selective about specific equities will get the most aggressive rips if I’m correct and there is more upside left in this rally.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice.